Exhibit 10.4

 

SEVERANCE AGREEMENT

 

THIS SEVERANCE AGREEMENT is entered into as of November 5, 2012 (the “Effective
Date”) by and between Sally Beauty Holdings, Inc., a Delaware corporation (the
“Company’), and Matthew O. Haltom (the “Executive”).

 

WHEREAS, the Executive is serving as a key employee of the Company and his
services and knowledge are valuable to the Company in connection with the
management of one or more of the Company’s principal operating facilities,
divisions, departments or subsidiaries; and

 

WHEREAS, the Board (as defined in Section 1) has determined that it is in the
best interests of the Company and its shareholders to secure the Executive’s
continued services and to ensure the Executive’s continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether the
Executive might be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive’s
full attention and dedication to the Company.

 

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Executive hereby
agree as follows:

 

1.                                      Definitions. As used in this Agreement,
the following terms shall have the respective meanings set forth below:

 

(a)                                 “Board” means the Board of Directors of the
Company.

 

(b)                                 “Cause” means (1) a material breach by the
Executive of those duties and responsibilities of the Executive that do not
differ in any material respect from the duties and responsibilities of the
Executive during the six-month period immediately prior to a Change in Control
(other than as a result of incapacity due to physical or mental illness) which
breach (A) is demonstrably willful and deliberate on the Executive’s part,
(B) is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company, and (C) is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach, or (2) the commission by the Executive of a felony involving moral
turpitude.

 

(c)                                  “Change in Control” means:

 

(1)                                 The occurrence of any one or more of the
following events:

 

(A)                               The acquisition by any individual, entity or
group, including any “person” within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act (a “Person”), of beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act of 20% or more of the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that a Change in Control shall not result from
an acquisition of Outstanding Company Voting Securities:

 

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(i)                                     directly from the Company, except as
otherwise provided in Section 1(c)(2)(A);

 

(ii)                                  by the Company, except as otherwise
provided in Section 1(c)(2)(B);

 

(iii)                               by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company; or

 

(iv)                              by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if, immediately
after such reorganization, merger or consolidation, each of the conditions
described in clauses (i) and (ii) of Section 1(c)(1)(C) shall be satisfied.

 

(B)                               The cessation for any reason of the members of
the Incumbent Board (as such term is defined in Section 1) to constitute at
least a majority of the Board.

 

(C)                               Consummation of a reorganization, merger or
consolidation unless, in any such case, immediately after such reorganization,
merger or consolidation:

 

(i)                                     more than 50% of the combined voting
power of the then outstanding securities of the corporation resulting from such
reorganization, merger or consolidation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals or entities who were the beneficial
owners of the combined voting power of all of the Outstanding Company Voting
Securities immediately prior to such reorganization, merger or consolidation;
and

 

(ii)                                  at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such
reorganization, merger or consolidation.

 

(D)                               The sale or other disposition of all or
substantially all of the assets of the Company other than (x) pursuant to a
tax-free spin-off of a subsidiary or other business unit of the Company or
(y) to a corporation with respect to which, immediately after such sale or other
disposition:

 

(i)                                     more than 50% of the combined voting
power of the then outstanding securities thereof entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners of the combined voting power of all of the Outstanding Company Voting
Securities immediately prior to such sale or other disposition; and

 

(ii)                                  at least a majority of the members of the
board of directors thereof were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board providing for such
sale or other disposition.

 

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(E)                                Approval by the shareholders of the Company
of a plan of complete liquidation or dissolution of the Company.

 

(2)                                 Notwithstanding the provisions of
Section 1(c)(1)(A):

 

(A)                               No acquisition of Outstanding Company Voting
Securities shall be subject to the exception from the definition of Change in
Control contained in clause (i) of Section 1(c)(1)(A) if such acquisition
results from the exercise of an exercise, conversion or exchange privilege
unless the security being so exercised, converted or exchanged was acquired
directly from the Company; and

 

(B)                               for purposes of clause (ii) of
Section 1(c)(1)(A), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall, by reason of an acquisition of
Outstanding Company Voting Securities by the Company, become the beneficial
owner of 20% or more of the combined voting power of the Outstanding Company
Voting Securities, and such Person shall, after such acquisition of Outstanding
Company Voting Securities by the Company, become the beneficial owner of any
additional Outstanding Company Voting Securities and such beneficial ownership
is publicly announced, such additional beneficial ownership shall constitute a
Change in Control.

 

(d)                                 “Company” means Sally Beauty Holdings, Inc.

 

(e)                                  “Code” means the Internal Revenue Code of
1986, as amended from time to time.  For purposes of this Agreement, references
to sections of the Code shall be deemed to include references to any applicable
regulations thereunder and any successor or similar provision.

 

(f)                                   “Date of Termination” means (1) the
effective date on which the Executive’s employment by the Company terminates as
specified in a prior written notice by the Company or the Executive, as the case
may be, to the other, delivered pursuant to Section 11, or (2) if the
Executive’s employment by the Company terminates by reason of death, the date of
death of the Executive.

 

(g)                                  “Exchange Act” means the Securities
Exchange Act of 1934, as amended.

 

(h)                                 “Good Reason” means, without the Executive’s
express written consent, the occurrence of any of the following events after a
Change in Control:

 

(1)                                 a material diminution in the Executive’s
authority, duties, or responsibilities as in effect immediately prior to such
Change in Control or as the same may be increased from time to time thereafter;

 

(2)                                 a material diminution in the authority,
duties, or responsibilities of the supervisor to whom the Executive is required
to report, or, if the Executive reports directly to the Board, a requirement
that the Executive report to a corporate officer or employee instead of
reporting directly to the Board;

 

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(3)                                 a material reduction by the Company in the
Executive’s rate of annual base salary as in effect immediately prior to such
Change in Control or as the same may be increased from time to time thereafter;

 

(4)                                 a material diminution in the budget over
which the Executive retains authority;

 

(5)                                 a material change in the geographic location
at which the Executive must perform services (it being acknowledged that a
change of 20 miles or more shall be a material change); or

 

(6)                                 any other action or inaction that
constitutes a material breach by the Company of this Agreement, including,
without limitation, any failure by the Company to comply with and satisfy
Section 10(b) of this Agreement.

 

A termination by the Executive shall not constitute termination for Good Reason
unless the Executive shall first have delivered to the Company written notice
setting forth with specificity the occurrence deemed to give rise to a right to
terminate for Good Reason (which notice must be given no later than 90 days
after the occurrence of such event), and there shall have passed a reasonable
time (not less than 30 days) within which the Company may take action to
correct, rescind or otherwise substantially reverse the occurrence supporting
termination for Good Reason as identified by the Executive.

 

(i)                                     “Incumbent Board” means those
individuals who, as of November 5, 2012, constitute the Board, provided that:

 

(1)                                 any individual who becomes a director of the
Company subsequent to such date whose election, or nomination for election by
the Company’s shareholders, was approved by the vote of at least a majority of
the directors then comprising the Incumbent Board shall be deemed to have been a
member of the Incumbent Board; and

 

(2)                                 no individual who was initially elected as a
director of the Company as a result of an actual or threatened election contest,
as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act, or any other actual or threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board shall be deemed to
have been a member of the Incumbent Board.

 

(j)                                    “Nonqualifying Termination” means a
termination of the Executive’s employment (1) by the Company for Cause, (2) by
the Executive for any reason other than a Good Reason, (3) as a result of the
Executive’s death or (4) by the Company due to the Executive’s absence from his
duties with the Company on a full-time basis for at least 180 consecutive days
as a result of the Executive’s incapacity due to physical or mental illness.

 

(k)                                 “Termination Period” means the period of
time beginning with a Change in Control and ending on the earlier to occur of
(1) two years following such Change in Control or (2) the Executive’s death.

 

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2.                                      Obligations of the Executive. The
Executive agrees that in the event of a Change in Control, he shall not
voluntarily leave the employ of the Company without Good Reason until 90 days
following such Change in Control. The Executive further agrees that in the event
that any person or group attempts a Change in Control, he shall not voluntarily
leave the employ of the Company during such attempted Change in Control unless
an event occurs which would have constituted Good Reason had it occurred
following a Change in Control (for purposes of determining whether such an event
would have constituted Good Reason had it occurred following a Change in
Control, the definition of Good Reason shall be interpreted as if a Change in
Control had occurred when such attempted Change in Control became known to the
Board). The Executive acknowledges that if he leaves the employ of the Company
for any reason prior to a Change in Control, he shall not be entitled to any
payment or benefit pursuant to this Agreement.

 

3.                                      Payments Upon Termination of Employment.

 

(a)                                 If during the Termination Period the
employment of the Executive shall terminate, other than by reason of a
Nonqualifying Termination, then the Company shall pay to the Executive (or the
Executive’s beneficiary or estate) within 60 days following the Date of
Termination (or such later date as may be required by Section 17 hereof), as
compensation for services rendered to the Company:

 

(1)                                 a cash amount equal to the sum of (i) the
Executive’s base salary from the Company and its affiliated companies through
the Date of Termination, to the extent not theretofore paid, (ii) an amount
equal to the Executive’s annual bonus in an amount determined in accordance with
the terms of the Company’s annual incentive plan, multiplied by a fraction, the
numerator of which is the number of days in the Company’s fiscal year prior to
the Date of Termination and the denominator of which is 365 (which amount,
notwithstanding the foregoing, shall be paid when and as bonuses under such plan
are ordinarily paid), and (iii) any accrued vacation pay, in each case to the
extent not theretofore paid; plus

 

(2)                                 provided that the Company has received a
customary release (which release shall extend to all claims against the Company
and its affiliates and agents) signed by the Executive and not revoked within
the permitted revocation period, a lump sum payment equal to 1.99 times the
Executive’s annual base salary at the Date of Termination from the Company and
its affiliated companies plus 1.99 times the average of the dollar amount of the
Executive’s actual or annualized (for any fiscal year consisting of less than 12
full months) annual bonus, paid or payable, including by reason of any deferral,
to the Executive by the Company and its affiliated companies in respect of the
five fiscal years of the Company immediately preceding the fiscal year in which
the Date of Termination occurs; provided, further, that any amount paid pursuant
to this Section 3(a)(2) shall be paid in lieu of any other amount of severance
relating to salary or bonus continuation to be received by the Executive upon
termination of employment of the Executive under any severance plan, policy or
arrangement of the Company.

 

(b)                                 In addition to the payments to be made
pursuant to Section 3(a) hereof, any stock options or other equity awards
granted to the Executive under the Company’s equity compensation plans shall be
treated in accordance with the terms of such plan, and the payment of any
compensation previously deferred by the Executive (together with any interest
and

 

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earnings thereon) shall be treated in accordance with the terms of such separate
deferral arrangement.

 

(c)                                  For a period of 24 months commencing on the
Date of Termination, the Company shall continue to keep in full force and effect
all policies of medical, accident, disability and life insurance with respect to
the Executive and his dependents with the same level of coverage, upon the same
terms and otherwise to the same extent as such policies shall have been in
effect immediately prior to the Date of Termination or as provided generally
with respect to other peer executives of the Company and its affiliated
companies, and the Company and the Executive shall share the costs of the
continuation of such insurance coverage in the same proportion as such costs
were shared immediately prior to the Date of Termination. Notwithstanding the
foregoing: (i) during the period of coverage, the benefits provided in any one
calendar year shall not affect the amount of benefits provided in any other
calendar year (other than any life-time coverage limits under the applicable
medical plans); (ii) the reimbursement of an eligible expense shall be made on
or before December 31 of the year following the year in which the expense was
incurred; and (iii) the Executive’s rights pursuant to this Section 3(c) shall
not be subject to liquidation or exchange for another benefit.

 

(d)                                 If during the Termination Period the
employment of the Executive shall terminate by reason of a Nonqualifying
Termination, then the Company shall pay to the Executive within 30 days
following the Date of Termination, a cash amount equal to the sum of (1) the
Executive’s full annual base salary from the Company through the Date of
Termination, to the extent not theretofore paid and (2) any accrued vacation
pay, to the extent not theretofore paid.  The payment of any compensation
previously deferred by the Executive (together with any interest and earnings
thereon) shall be treated in accordance with the terms of such separate deferral
arrangement.

 

4.                                      Limitations on Payments by the Company.
Solely for the purposes of the computation of benefits under this Agreement and
notwithstanding any other provisions hereof, payments to the Executive under
this Agreement shall be reduced (but not below zero) so that the present value,
as determined in accordance with Section 280G(d)(4) of the Code, of such
payments plus any other payments that must be taken into account for purposes of
any computation relating to the Executive under Section 280G(b)(2)(A)(ii) of the
Code, shall not, in the aggregate, exceed 2.99 times the Executive’s “base
amount,” as such term is defined in Section 280G(b)(3) of the Code.
Notwithstanding any other provision hereof, no reduction in payments under the
limitation contained in the immediately preceding sentence shall be applied to
payments hereunder which do not constitute “excess parachute payments” within
the meaning of the Code. Any payments in excess of the limitation of this
Section 4 or otherwise determined to be “excess parachute payments” made to the
Executive hereunder shall be deemed to be overpayments which shall constitute an
amount owing from the Executive to the Company with interest from the date of
receipt by the Executive to the date of repayment (or offset) at the applicable
federal rate under Section 1274(d) of the Code, compounded semi-annually, which
shall be payable to the Company upon demand; provided, however, that no
repayment shall be required under this sentence if in the written opinion of tax
counsel satisfactory to the Executive and delivered to the Executive and the
Company such repayment does not allow such overpayment to be excluded for
federal income and excise tax purposes from the Executive’s

 

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income for the year of receipt or afford the Executive a compensating federal
income tax deduction for the year of repayment.

 

5.                                      Withholding Taxes. The Company may
withhold from all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.

 

6.                                      Reimbursement of Expenses. If any
contest or dispute shall arise under this Agreement involving termination of the
Executive’s employment with the Company or involving the failure or refusal of
the Company to perform fully in accordance with the terms hereof, the Company
shall reimburse the Executive, on a current basis, for all legal fees and
expenses, if any, incurred by the Executive in connection with such contest or
dispute, together with interest in an amount equal to the prime rate from time
to time in effect, as published under “Money Rates” in The Wall Street Journal,
but in no event higher than the maximum legal rate permissible under applicable
law, such interest to accrue from the date the Company receives the Executive’s
statement for such fees and expenses through the date of payment thereof;
provided, however, that, the Executive shall be required to reimburse the
Company for all sums advanced to the Executive pursuant to this Section 6 unless
he shall have prevailed with respect to one or more material claim in such
contest or dispute. The amount reimbursable by the Company under this Section 6
in any one calendar year shall not affect the amount reimbursable in any other
calendar year, and the reimbursement of an eligible expense shall be made within
30 days after delivery of the Executive’s respective written requests for
payment accompanied with such evidence of fees and expenses incurred as the
Company reasonably may require, but in any event no later than December 31 of
the year after the year in which the expense was incurred.  The Executive’s
rights pursuant to this Section 6 shall expire at the end of ten years after the
Date of Termination and shall not be subject to liquidation or exchange for
another benefit.

 

7.                                      Operative Event. Notwithstanding any
provision herein to the contrary, no amounts shall be payable hereunder unless
and until there is a Change in Control at a time when the Executive is employed
by the Company.

 

8.                                      Termination of Agreement.

 

(a)                                 This Agreement shall be effective on the
Effective Date and shall continue until terminated by the Company as provided in
Section 8(b); provided, however, that this Agreement shall terminate in any
event upon the first to occur of (i) termination of the Executive’s employment
with the Company prior to a Change in Control or (ii) the Executive’s death.

 

(b)                                 The Company shall have the right prior to a
Change in Control, in its sole discretion, pursuant to action by the Board, to
approve the termination of this Agreement, which termination shall not become
effective until the date fixed by the Board for such termination, which date
shall be at least 120 days after notice thereof is given by the Company to the
Executive in accordance with Section 11; provided, however, that no such action
shall be taken by the Board during any period of time when the Board has
knowledge that any person has taken steps reasonably calculated to effect a
Change in Control until, in the opinion of the Board, such person has abandoned
or terminated its efforts to effect a Change in Control; and provided further,
that in no event shall this Agreement be terminated in the event of a Change in
Control.

 

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9.                                      Scope of Agreement. Nothing in this
Agreement shall be deemed to entitle the Executive to continued employment with
the Company or its subsidiaries, and if the Executive’s employment with the
Company shall terminate prior to a Change in Control, then the Executive shall
have no further rights under this Agreement; provided, however, that any
termination of the Executive’s employment following a Change in Control shall be
subject to all of the provisions of this Agreement.

 

10.                               Successors; Binding Agreement.

 

(a)                                 This Agreement shall not be terminated by
any merger or consolidation of the Company whereby the Company is or is not the
surviving or resulting corporation or as a result of any transfer of all or
substantially all of the assets of the Company. In the event of any such merger,
consolidation or transfer of assets, the provisions of this Agreement shall be
binding upon the surviving or resulting corporation or the person or entity to
which such assets are transferred.

 

(b)                                 The Company agrees that concurrently with
any merger, consolidation or transfer of assets referred to in Section 10(a), it
will cause any successor or transferee unconditionally to assume, by written
instrument delivered to the Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall entitle the
Executive to compensation and other benefits from the Company in the same amount
and on the same terms as the Executive would be entitled hereunder if the
Executive’s employment were terminated following a Change in Control other than
by reason of a Nonqualifying Termination. For purposes of implementing the
foregoing payment of compensation and benefits to the Executive, the date on
which any such merger, consolidation or transfer becomes effective shall be
deemed the Date of Termination.

 

(c)                                  This Agreement shall inure to the benefit
of and be enforceable by the Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive shall die after a termination of employment during
the Termination Period (other than a Nonqualifying Termination) while any
amounts would be payable to the Executive hereunder had the Executive continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to such person or persons appointed
in writing by the Executive to receive such amounts or, if no person is so
appointed, to the Executive’s estate.

 

11.                               Notice.

 

(a)                                 For purposes of this Agreement, all notices
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to his most recent address
as it appears in the records of the Company, and if to the Company, to it at
3001 Colorado Boulevard, Denton, TX 76210, attention of the President, with a
copy to the General Counsel or (2) to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.

 

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(b)                                 A written notice of the Executive’s Date of
Termination by the Company or the Executive, as the case may be, to the other,
shall (i) indicate the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated and (iii) specify the termination
date (which date shall not be less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive’s or the Company’s rights hereunder.

 

12.                               Full Settlement; Resolution of Dispute. The
Company’s obligation to make any payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not the Executive obtains other employment.

 

13.                               Employment with Subsidiaries. Employment with
the Company for purposes of this Agreement shall include employment with any
corporation or other entity in which the Company has a direct or indirect
ownership interest of 50% or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.

 

14.                               Governing Law; Validity. The interpretation,
construction and performance of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to the principle of conflicts of laws. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.

 

15.                               Counterparts. This Agreement may be executed
in two counterparts, each of which shall be deemed to be an original and both of
which together shall constitute one and the same instrument.

 

16.                               Miscellaneous. Except as provided in
Section 17, no provision of this Agreement may be modified or waived unless such
modification or waiver is agreed to in writing and signed by the Executive and
by a duly authorized officer of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Failure by the Executive or the
Company to insist upon strict compliance with any provision of this Agreement or
to assert any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement. The rights of, and benefits payable
to, the Executive, his estate or his

 

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beneficiaries pursuant to this Agreement are in addition to any rights of, or
benefits payable to, the Executive, his estate or his beneficiaries under any
other employee benefit plan or compensation program of the Company.

 

17.                               Application of Section 409A.

 

(a)                                 General.  This Agreement shall be
interpreted and administered in a manner so that any amount or benefit payable
hereunder shall be paid or provided in a manner that is either exempt from or
compliant with the requirements Section 409A of the Code and applicable advice
and regulations issued thereunder. Nevertheless, the tax treatment of the
benefits provided under the Agreement is not warranted or guaranteed.  Neither
the Company nor its directors, officers, employees or advisers (other than the
Executive) shall be held liable for any taxes, interest, penalties or other
monetary amounts owed by the Executive as a result of the application of
Section 409A of the Code.

 

(b)                                 Definitional Restrictions.  Notwithstanding
anything in this Agreement to the contrary, to the extent that any amount or
benefit that would constitute non-exempt “deferred compensation” for purposes of
Section 409A of the Code would otherwise be payable or distributable hereunder
by reason of the Executive’s termination of employment, such amount or benefit
will not be payable or distributable to the Executive by reason of such
circumstance unless the circumstances giving rise to such termination of
employment meet any description or definition of “separation from service” in
Section 409A of the Code and applicable regulations (without giving effect to
any elective provisions that may be available under such definition).  This
provision does not prohibit the vesting of any amount upon a termination of
employment, however defined.  If this provision prevents the payment or
distribution of any amount or benefit, such payment or distribution shall be
made on the date, if any, on which an event occurs that constitutes a
Section 409A-compliant “separation from service” or such later date as may be
required by subsection (c) below.

 

(c)                                  Six-Month Delay in Certain Circumstances. 
Notwithstanding anything in this Agreement to the contrary, if any amount or
benefit that would constitute non-exempt “deferred compensation” for purposes of
Section 409A of the Code would otherwise be payable or distributable under this
Agreement by reason of the Executive’s separation from service during a period
in which he is a Specified Employee (as defined below), then, subject to any
permissible acceleration of payment by the Company under Treas. Reg.
Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of
interest), or (j)(4)(vi) (payment of employment taxes):

 

(1)                                 if the payment or distribution is payable in
a lump sum, the Executive’s right to receive payment or distribution of such
non-exempt deferred compensation will be delayed until the earlier of the
Executive’s death or the first day of the seventh month following the
Executive’s separation from service; and

 

(2)                                 if the payment or distribution is payable
over time, the amount of such non-exempt deferred compensation that would
otherwise be payable during the six-month period immediately following the
Executive’s separation from service will be accumulated and the Executive’s
right to receive payment or distribution of such accumulated amount will be
delayed until the earlier of the Executive’s death or the first day of the
seventh month following the

 

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Executive’s separation from service, whereupon the accumulated amount will be
paid or distributed to the Executive on such date and the normal payment or
distribution schedule for any remaining payments or distributions will resume.

 

For purposes of this Agreement, the term “Specified Employee” has the meaning
given such term in Code Section 409A and the final regulations thereunder
(“Final 409A Regulations”), provided, however, that, as permitted in the Final
409A Regulations, the Company’s Specified Employees and its application of the
six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in
accordance with rules adopted by the Board or a committee thereof, which shall
be applied consistently with respect to all nonqualified deferred compensation
arrangements of the Company, including this Agreement.

 

(d)                                 Treatment of Installment Payments.  Each
payment of termination benefits under Section 3 of this Agreement, including,
without limitation, each installment payment and each payment or reimbursement
of premiums for continued medical, accident, disability or life insurance
coverage under Section 3(c), shall be considered a separate payment, as
described in Treas. Reg. Section 1.409A-2(b)(2), for purposes of Section 409A of
the Code.

 

(e)                                  Timing of Release of Claims.  Whenever in
this Agreement a payment or benefit is conditioned on the Executive’s execution
and non-revocation of a release of claims, such release must be executed and all
revocation periods shall have expired within 60 days after the Executive’s
termination of employment; failing which such payment or benefit shall be
forfeited.  If such payment or benefit constitutes non-exempt deferred
compensation, and if such 60-day period begins in one calendar year and ends in
the next calendar year, the payment or benefit shall not be made or commence
before the second such calendar year, even if the release becomes irrevocable in
the first such calendar year.  In other words, the Executive is not permitted to
influence the calendar year of payment based on the timing of his signing of the
release.

 

(f)                                   Permitted Acceleration.  The Company shall
have the sole authority to make any accelerated distribution permissible under
Treas. Reg. Section 1.409A-3(j)(4) to the Executive of deferred amounts,
provided that such distribution meets the requirements of Treas. Reg.
Section 1.409A-3(j)(4).

 

(g)                                  409A Amendments.  The Company shall have
the right to make such amendments, if any, to this Agreement as shall be
necessary to avoid the application of Section 409A(a)(1) of the Code to the
payments of amounts pursuant to this Agreement, and shall give prompt notice of
any such amendment to the Executive. If the Company defers payments to the
Executive pursuant to this Section 17, then the Company shall provide the
Executive with prompt written notice thereof, including reasonable explanation
and the estimated date on which it has determined it is permitted to make the
payments deferred under this Section 17.

 

(signatures on following page)

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a
duly authorized officer of the Company and the Executive has executed this
Agreement as of the Effective Date.

 

 

SALLY BEAUTY HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gary G. Winterhalter

 

 

Gary G. Winterhalter

 

 

President and Chief Executive Officer

 

 

 

 

 

 

EXECUTIVE

 

 

 

/s/ Matthew O. Haltom

 

Matthew O. Haltom

 

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