Exhibit 10.1

SETTLEMENT AND RELEASE AGREEMENT

This Settlement and Release Agreement (“Agreement”) is made and entered into by
and between Sue E. Gove (“Employee”), and Zale Corporation (“Zale”) hereinafter
collectively referred to as the “Parties.”

RECITALS

WHEREAS, Employee was employed by Zale as Executive Vice President and Chief
Operating Officer of Zale, served as a director of Zale, and served in other
positions with Zale and its subsidiaries;

WHEREAS, Employee resigned as Executive Vice President and Chief Operating
Officer of Zale, as a director of Zale, and from any and all other positions
that she had with Zale or its subsidiaries, effective as of March 24, 2006 (the
“Separation Date”); and

WHEREAS, Employee and Zale desire to settle fully and finally all differences
between them which have arisen, or which may arise, prior to, or at the time of,
the execution of this Agreement, including, but in no way limited to, any and
all claims and controversies arising out of the employment relationship between
Employee and Zale and the cessation of Employee’s employment with Zale;

NOW, THEREFORE, in consideration of the Recitals and the mutual promises,
covenants, and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee and Zale, intending to be legally bound, covenant and agree as follows:

1.             (a)  Employee shall be entitled to receive the following
post-termination benefits, and no others:

(i)            in cash on December 18, 2006, the sum of $2,340,000 (less
customary payroll deductions), consisting of (A) $1,300,000, representing two
times Employee’s base salary on the Separation Date, and (B) $1,040,000,
representing two times Employee’s target bonus on the Separation Date;

(ii)           through March 31, 2008, Zale will continue to allow Employee to
participate in the medical and dental insurance plans, Medical Expense
Reimbursement Plan (“MERP”), disability plan, executive car program, life
insurance plan, and financial planning program on the same terms and conditions
under which Employee participated in those plans on September 21, 2005, subject
to the provisions of Sections 5(h) and 5(i) of the Employment Agreement, which
sections are incorporated herein by reference; provided, however, the continued
medical insurance provided pursuant to this Section 1(a)(ii) will count in
satisfaction of Employee’s right to continue such benefits pursuant to the
Consolidated Omnibus Budget Reconciliation Act of

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1985, as amended and Employee shall pay an amount equal to the “employee
portion” of the premiums during such period, and provided further that employee
shall not be entitled to a new car during such period but shall be entitled to
the continued use of her current car through the expiration of its lease-term;

(iii)          the unvested stock options, restricted stock and other long-term
incentive awards listed on Schedule A hereto will be deemed to have vested on
the Separation Date and all such vested options and awards involving the
exercise of rights will continue to be exercisable for the remainder of their
respective terms, provided, however, that any unvested restricted stock units
that immediately vest will be paid out on January 1, 2007, and other awards
shall be delivered promptly to the extent not previously delivered;

(iv)          1,100 of the performance-based restricted stock units provided for
in Section 3(c)(A) of the Employment Agreement will be deemed to have vested on
the Separation Date and the 1,100 shares of Company common stock attributable
thereto will be paid out January 1, 2007, and the remaining performance-based
restricted stock units shall be forfeited;

(v)           in cash on December 18, 2006, the lump-sum amount of $275,635.77
(less customary payroll deductions), representing all amounts due Employee under
the terms of the Zale Supplemental Employee Retirement Plan pursuant to such
plan’s terms; and

(vi)          any accrued, but unpaid, salary (including unpaid vacation pay
through the Separation Date), expenses and benefits as of the Separation Date
shall be paid to Employee in accordance with Zale’s standard payroll and expense
reimbursement practices.

In the event of Employee’s death prior to her receipt in full of the payments
and benefits to which she (or her family) is entitled as described in this
Section 1(a), any such payment or benefit to the extent not made or provided at
or prior to the time of her death shall, except for benefits to her family as
provided in the next sentence, be made to her estate or other legal
representative.  Healthcare, dental and welfare benefits to Employee’s family
shall be provided for the period remaining from the date of death to March 31,
2008 on the same basis as such benefits are provided under Section 1(a)(ii)
prior to Employee’s death.  Any stock options outstanding at the time of
Employee’s death shall continue to be exercisable for the remainder of their
terms.  Any long-term incentive awards that are due hereunder and not yet paid
shall be paid as provided in clauses (iii), (iv) and (v) above.  In making any
of the payments or taking any of the actions contemplated by this provision or
elsewhere in this Agreement, Zale shall be fully protected in the event that it
makes a payment or takes an action based upon instructions received from
Employee’s executor or other legal representative.

(b)           In addition, Employee and Zale shall continue to be subject to
Sections 6 through 24 of the Employment Agreement.  The Parties expressly agree
that except for Sections 5(g), 5(h), 5(i), 6 and 7 through 24, which are
incorporated herein by reference and shall be applicable to the provisions of
this Agreement, neither Party shall have any further obligations under the
Employment Agreement.

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2.             Employee, for herself and on behalf of her attorneys, heirs,
assigns, successors, executors, and administrators, hereby irrevocably (subject
to Section 9 of this Agreement) and unconditionally GENERALLY RELEASES, ACQUITS,
AND FOREVER DISCHARGES Zale, its current and former subsidiary, affiliated, and
related corporations, firms, associations, partnerships, and entities, their
successors and assigns, and the current and former owners, shareholders,
directors, officers, employees, agents, attorneys, representatives, and insurers
of said corporations, firms, associations, partnerships, and entities, and their
guardians, successors, assigns, heirs, executors, and administrators
(hereinafter collectively referred to as the “Zale Releasees”) from any and all
claims, complaints, grievances, liabilities, obligations, promises, agreements,
damages, causes of action, rights, debts, demands, controversies, costs, losses,
and expenses (including attorneys’ fees and expenses) whatsoever, under any
municipal, local, state, or federal law, common or statutory — including, but in
no way limited to, claims arising under the Age Discrimination in Employment Act
of 1967, 29 U.S.C. § 621, et seq., as amended, Title VII of the Civil Rights Act
of 1964, 42 U.S.C. § 2000e, et seq., as amended (including the Civil Rights Act
of 1991), the Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12101, et
seq., as amended, the Employee Retirement Income Security Act of 1974, (ERISA),
29 U.S.C. §§ 1001 et seq., as amended, the Family and Medical Leave Act
(“FMLA”), 29 U.S.C. §§ 2601 et seq., as amended, the Labor Management Relations
Act, 29 U.S.C. §§ 141 et seq., as amended, the Occupational Safety and Health
Act (“OSHA”), 29 U.S.C. §§ 651 et seq., as amended, the Racketeer Influenced and
Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., as amended, the
Sarbanes Oxley Act of 2002, the Sabine Pilot Doctrine, the American Jobs
Creation Act of 2004, the Texas Commission on Human Rights Act (“TCHRA”‘), Texas
Labor Code §§ 1.001 et seq., as amended, the Texas Pay Day Law, Texas Labor Code
§§ 61.001 et seq., as amended, and/or the Texas Worker’s. Compensation
Discrimination Law, Texas Labor Code §§ 451.001 et seq., as amended — for any
actions or omissions whatsoever, whether known or unknown, and whether connected
with the employment relationship between Employee and Zale, and/or the cessation
of Employee’s employment with Zale, or not, which existed or may have existed
prior to, or contemporaneously with, the execution of this Agreement (the
“Released Claim(s)”).  Furthermore, to the extent permitted by law, Employee
forever waives, releases, and covenants not to sue or file any complaint or
claim against any Releasee with any court, governmental agency or other entity
based on a Released Claim, whether known or unknown at the time of execution. 
Employee also waives any right to recover from a Zale Releasee in a civil suit
brought by any governmental agency or any other individual on her behalf with
respect to any Released Claim.  This release covers both claims that Employee
knows about and those she may not know about, except that it does not waive or
release any rights or claims that she may have under the Age Discrimination in
Employment Act that arise after the date she signs the Agreement.

Notwithstanding the foregoing, Employee does not release:

(i)            claims that Employee may have against Zale for reimbursement of
ordinary and necessary business expenses incurred by her during the course of
her employment;

(ii)           claims that arise after the effective date of this Agreement;

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(iii)          any rights Employee may have to enforce the surviving provisions
of the Employment Agreement as specified in Section 1(b) of this Agreement or,
subject to the Undertaking Agreement between Zale and Employee dated as of
August 21, 2006 (the “Undertaking Agreement”),  her reservation of rights
contained in the letter dated August 21, 2006;

(iv)          any rights or entitlements that Employee has under any applicable
written plan, policy, program, or written arrangement of, or other written
agreement, including this Agreement, with, Zale;

(v)           Subject to the Undertaking Agreement, Employee’s right to be
indemnified and to have her expenses reimbursed under Section 10 of the
Employment Agreement, Zale’s Certificate of Incorporation or Bylaws or under
applicable law or pursuant to Zale’s directors’ and officers’ liability
insurance policies with respect to liabilities she incurred as an employee,
officer or director of Zale or a subsidiary of Zale; and

(vi)          Employee’s right to contribution as permitted by law in the event
of entry of judgment against her as a result of any act or failure to act for
which she, Zale, a subsidiary of Zale and/or other officers and directors of
either were liable.

Employee acknowledges and warrants, understanding the truth of said
acknowledgment and warranty is material to the making of this Agreement, that
she has not assigned or otherwise transferred any of the claims released by her
through this Agreement, and she hereby promises to indemnify and hold harmless
the Zale Releasees with respect to any damages, costs or other injuries,
including the payment of attorneys’ fees, which might arise through the
assertion of any Released Claim(s).

3.             (a)           Employee expressly acknowledges, agrees, and
covenants that she will not make any public or private statements, comments, or
communications in any form, oral, written, or electronic (all of the foregoing,
for purposes of this paragraph, “Communications”), which in any way could
constitute libel, slander, false light, or disparagement of Zale, its
subsidiaries, affiliates or parent, its employees, officers, and/or directors,
or which may be considered to be derogatory or detrimental to its or their good
name or business reputation; provided, however, that the terms of this paragraph
shall not (a) apply to Communications between Employee and clergy or attorneys
that are subject to a claim of privilege existing under common law, statute, or
rule of procedure, (b) apply to Communications required by law or made in
response to a valid subpoena or other lawful order compelling Employee to
provide testimony or information, provided, however, that in responding to a
valid subpoena or lawful order, Employee agrees to provide Zale with advance
notice and an opportunity to seek a protective order or other safeguard for its
confidential information, (c) be construed to inhibit or limit Employee’s
ability to cooperate with any investigation by a governmental or regulatory
agency or official, provided, however, that prior to cooperating Employee agrees
to provide Zale with advance notice and an opportunity to seek a protective
order or other safeguard for its confidential information, or (d) apply to a
truthful statement made for the purpose of correcting inaccuracies or defending
her reputation in response to any derogatory or detrimental statement made by
Zale (or any of its affiliates, officers and/or directors) in a press release or
other public statement.  Employee

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specifically agrees not to issue any public statement concerning her employment
at Zale and/or the cessation of such employment.

Without limiting the generality of the foregoing or the provisions of Section 9
of the Employment Agreement, Employee expressly agrees not to discuss, directly
or indirectly, the business and affairs of Zale with any analysts, shareholders
or potential shareholders of Zale, investment bankers or financial advisors,
potential equity investors in Zale, or employees of Zale, or to provide any of
the foregoing any financial or other non-public information regarding Zale,
without the express written consent of Zale, which consent can be withheld for
any reason or for no reason.

(b)           Subject to reasonable preexisting personal and business
commitments, for a period of 24 months following the Separation Date, Employee
agrees to cooperate with Zale following the termination of her employment by
being reasonably available to testify on behalf of Zale or any subsidiary or
affiliate in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist Zale, or any subsidiary or
affiliate, in any such action, suit or proceeding, by providing information and
meeting and consulting with representatives or counsel to Zale, or any
subsidiary or affiliate, as reasonably requested; provided, however, that in no
event shall Employee be required to provide any cooperation if such cooperation
is materially adverse to her legal interests.  In any event, in any matter
subject to this Section 3(b), Employee shall not be required to act against the
best interests of any new employer or new business venture in which she is a
partner or active participant where the interests of Employee’s new employer or
new business venture are adverse to the interests of Zale and/or any of its
subsidiary, affiliate or related entities.  Zale agrees to provide Employee
reasonable notice, to the extent practicable, in the event her assistance is
required and, to the extent possible, Zale will try to limit Employee’s
participation to regular business hours.  Zale will reimburse Employee for the
reasonable expenses and costs actually incurred by her as a result of providing
such assistance, upon the submission of the appropriate documentation to Zale. 
Such expenses and costs shall include, without limitation, demonstrably lost
wages, travel costs and reasonable legal fees to the extent that she is advised
by counsel reasonably acceptable to Zale that separate representation is
warranted because Employee’s interests are inconsistent with those of Zale such
that Employee cannot be represented by Zale’s legal counsel.  Employee’s
entitlement to reimbursement of such expenses and costs, including reasonable
legal fees, pursuant to this Section 3(b), shall in no way affect Employee’s
rights to be indemnified and/or advanced expenses in accordance with Zale’s
corporate documents, any applicable insurance policy, and/or in accordance with
Section 10 of the Employment Agreement and Section 1(b) of this Agreement.

(c)           For a period of 24 months following the Separation Date, Employee
agrees that she shall not offer assistance or testimony in any action against
Zale or any of its subsidiary, affiliated or related entities (other than an
action against Zale, its subsidiary, affiliated or related entities and Employee
jointly) brought by another entity, individual or individuals, unless ordered to
do so by a court, agency or regulatory authority, and then only after Employee
has given Zale’s General Counsel written notice, together with all supporting
legal papers or documents served upon her, as promptly as practicable following
her receipt of such notice.

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4.             Employee waives and releases forever any right and/or rights she
might have to seek or obtain employment, reemployment, and/or reinstatement with
Zale or its subsidiaries, and agrees not to seek reemployment with any of same.

5              By entering into this Agreement, neither Party admits, and each
Party specifically denies, any violation of any contract, local, state, or
federal law, common or statutory.  This Agreement has been entered into in
release and compromise of claims as stated herein and to avoid the expense and
burden of dispute resolution.

6              If any provision or term of this Agreement is held to be illegal,
invalid, or unenforceable, such provision or term shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement.  Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision or term there shall be added automatically
as a part of this Agreement a provision or term as similar to the illegal,
invalid, or unenforceable provision as may be possible and that is legal, valid,
and enforceable.

7              This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its conflicts of laws
provisions, except where preempted by federal law.

8              Employee may revoke this Agreement by hand-delivered notice to
Zale, in writing, within seven (7) days of the date of Employee’s execution of
this Agreement (the “Revocation Period”).  Such revocation will revoke all
provisions of this Agreement, including those in favor of Zale or Employee. 
Employee acknowledges and agrees that she will not receive the benefits provided
by this Agreement if she revokes this Agreement.  Employee also acknowledges and
agrees that if Zale has not received from her notice of her revocation of this
Agreement prior to the expiration of the Revocation Period, Employee will have
forever waived her right to revoke this Agreement and this Agreement shall
thereafter be enforceable and have full force and effect.

9              By executing this Agreement, Employee acknowledges that

(a)           THIS AGREEMENT HAS BEEN REVIEWED WITH HER BY A REPRESENTATIVE OF
ZALE;

(b)           SHE UNDERSTANDS THAT SHE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO
CONSIDER WHETHER OR NOT SHE DESIRES TO ENTER INTO THIS AGREEMENT;

(c)           SHE HAS BEEN ADVISED BY ZALE TO CONSULT WITH AN ATTORNEY REGARDING
THE TERMS OF THIS AGREEMENT;

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(d)           SHE HAS CONSULTED WITH, OR HAS HAD SUFFICIENT OPPORTUNITY TO
CONSULT WITH, AN ATTORNEY OF HER OWN CHOOSING REGARDING THE TERMS OF THIS
AGREEMENT;

(e)           ANY AND ALL QUESTIONS REGARDING THE TERMS OF THIS AGREEMENT HAVE
BEEN ASKED AND ANSWERED TO HER COMPLETE SATISFACTION;

(f)            SHE HAS READ THIS AGREEMENT AND FULLY UNDERSTANDS ITS TERMS AND
THEIR IMPORT;

(g)           EXCEPT AS PROVIDED BY THIS AGREEMENT AND THE SURVIVING PROVISIONS
OF THE EMPLOYMENT AGREEMENT AS SPECIFIED IN SECTION 1(b) OF THIS AGREEMENT, SHE
HAS NO CONTRACTUAL RIGHT OR CLAIM TO THE BENEFITS DESCRIBED HEREIN;

(h)           THE CONSIDERATION PROVIDED FOR HEREIN IS GOOD AND VALUABLE; and

(i)            SHE IS ENTERING INTO THIS AGREEMENT VOLUNTARILY, OF HER OWN FREE
WILL, AND WITHOUT ANY COERCION, UNDUE INFLUENCE, THREAT, OR INTIMIDATION OF ANY
KIND OR TYPE WHATSOEVER.

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Each of the Parties understands that by signing this Agreement, such Party may
be giving up rights that Party may have.  Neither Party is required to sign this
Agreement.

Executed in Irving, Texas, this 8th day of December, 2006.

 

EMPLOYEE

 

 

 

 

 

/s/ Sue E. Gove

 

 

Sue E. Gove

 

 

 

 

 

ZALE CORPORATION

 

 

 

 

 

 

 

/s/ Mary E. Burton

 

 

By:  Mary E. Burton

 

Title:  President and Chief Executive Officer

 

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Schedule A

Options

 

Grant Date

 

Expiration Date

 

Grant Type

 

Exercise Price

 

Options
Exercisable

 

7/17/2002

 

7/17/2012

 

Non-Qualified

 

$

14.1450

 

42,932

 

7/17/2002

 

7/17/2012

 

Incentive

 

$

14.1450

 

7,068

 

7/22/2003

 

7/22/2013

 

Non-Qualified

 

$

23.2300

 

55,684

 

7/22/2003

 

7/22/2013

 

Incentive

 

$

23.2300

 

4,316

 

7/21/2004

 

7/21/2014

 

Non-Qualified

 

$

27.4400

 

51,355

 

7/21/2004

 

7/21/2014

 

Incentive

 

$

27.4400

 

3,645

 

9/6/2005

 

9/6/2015

 

Non-Qualified

 

$

27.5200

 

71,367

 

9/5/2005

 

9/6/2015

 

Incentive

 

$

27.5200

 

3,633

 

 

Restricted Stock

 

Grant Date

 

No. of Shares

 

7/21/2004

 

12,000

 

11/11/2005

 

15,000

 

 

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