EMPLOYMENT AGREEMENT
 
This Employment Agreement (this “Agreement”) is entered into as of this 5th day
of June 2006, by and between The Bombay Company, Inc., a Delaware corporation
(the “Company”), and David B. Stewart (the “Executive”).
 
RECITALS
 
WHEREAS, the Company is engaged, directly or indirectly, in the business of
designing, sourcing and marketing home accessories, wall décor and furniture
(the “Business”);
 
WHEREAS, the Company believes that it would benefit from the Executive’s skill,
experience and background, and wishes to employ the Executive as its Chief
Executive Officer;
 
WHEREAS, the Company expects to elect the Executive to serve as a Director of
the Company at the next meeting of the Board of Directors following the
Effective Date; and
 
WHEREAS, the parties desire by this Agreement to set forth in greater detail the
terms and conditions of the employment relationship between the Company and the
Executive.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, the Company and
the Executive hereby agree as follows:
 
1.  Employment of Executive.
 
(a)  General Duties. The Company hereby employs the Executive as its Chief
Executive Officer, and the Executive accepts such employment, on the terms and
subject to the conditions provided in this Agreement. As Chief Executive
Officer, the Executive shall be directly or indirectly responsible for all
operations of the Company, and every employee of the Company shall report,
directly or indirectly, to the Executive. The Executive shall report solely to
the Company’s Board of Directors (the “Board”) and shall devote substantially
all of his professional time, efforts, attention, energy and skill to performing
the duties of Chief Executive Officer of the Company. As part of these duties,
the Executive may serve on the Board of Directors of subsidiaries of the Company
as may be requested by the Company from time to time. Executive’s primary place
of employment shall be the Company’s executive offices in Fort Worth, Texas, or
such other place as such executive offices may be moved with the Executive’s
advance written consent. Provided that such activities do not violate any term
or condition of this Agreement, or materially interfere with the performance of
his duties hereunder, nothing herein shall prohibit the Executive from (a)
participating in other business activities approved in advance by the Board in
accordance with any terms and conditions of such approval, (b) engaging in
educational, charitable, civic, fraternal or trade group activities or (c)
investing his personal assets in the Company or other entities or business
ventures, subject to any applicable legal requirements and any policies of the
Company applicable to all executive personnel of the Company and members of the
Board. All communications and notices that the Executive desires to give to the
Board in his capacity as an officer of the Company shall be given to the
non-executive Chairman or to the “Lead Director” who is designated from time to
time by the entire Board.
 
 
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(b)  D&O Insurance. The Company shall use reasonable best efforts to provide
directors’ and officers’ liability insurance coverage for the benefit of the
Executive and his estate at all times during the “Employment Term” (defined
below) on the same terms and in the same amount as the Company then provides for
its other directors and executive officers. Upon the expiration of the
Employment Term and for a period thereafter equal to the shorter of (i) six (6)
years or (ii) the expiration of the applicable statute of limitations (the
“Post-Termination Coverage Period”), the Company will use reasonable best
efforts to maintain directors’ and officers’ liability insurance coverage for
its directors and executive officers in a manner that will continue to provide
coverage for the Executive’s acts and omissions during the Employment Term.
Notwithstanding the foregoing sentences of this Section 1(b), from and after the
occurrence of a ‘Change of Control” (as defined below), the Company shall be
obligated to use best efforts to maintain directors’ and officers’ liability
insurance coverage during the Employment Term and the Post-Termination Coverage
Period on terms and in amounts substantially similar to those maintained by the
Company immediately prior to the Change of Control.
 
2.  Employment Term. Subject to the terms and conditions of this Agreement, the
Executive’s term of employment under this Agreement (the “Employment Term”)
shall commence on the date hereof (the “Effective Date”) and continue until
June 5, 2009. Notwithstanding the foregoing, the Employment Term and the
Executive’s employment hereunder may be terminated in accordance with the
provisions of Section 4.
 
3.  Compensation. As compensation for performing the services required by this
Agreement, and during the Employment Term, the Executive shall be compensated as
follows:
 
(a)  Base Compensation. The Company shall pay to the Executive as base
compensation an annual salary (“Base Compensation”) of Six Hundred Thousand
Dollars ($600,000). Subject to subparagraph (b) below, the Base Compensation
shall be payable in accordance with the general policies and procedures for
payment of salaries to senior executive personnel of the Company as implemented
by the Board, in substantially equal installments, subject to withholding for
applicable federal, state, local and foreign taxes. Increases in Base
Compensation, if any, shall be determined by the Compensation and Human
Resources Committee of the Board (the “Compensation Committee”) based on an
annual review of the Executive’s performance to be conducted after January 1 and
prior to June 3 of each year during the Employment Term, subject to approval by
the Board. Upon the completion of each such review, but no later than June 3 of
each year, the Company shall provide the Executive with a written notice that
sets forth the amount of Base Compensation to be paid to the Executive during
the twelve-month period that begins on June 3 of such year.
 
(b)  Cash Incentive Compensation. At the end of each fiscal year of the Company
during the Employment Term and subject to the conditions specified herein, the
Executive shall be eligible to receive a cash bonus as incentive compensation in
addition to his Base Compensation (the “Cash Incentive Compensation”). The
Executive’s target Cash Incentive Compensation shall be equal to seventy-five
percent (75%) of his Base Compensation for each such fiscal year and shall be
determined pursuant to the Executive Performance Bonus Grid for such fiscal
year. “Executive Performance Bonus Grid” means the criteria established for each
fiscal year by the Compensation Committee for all executive officers of the
Company that specifies the percentage of each executive’s base salary that is
eligible to be paid to such executive as an incentive bonus upon the Company’s
achievement of certain profitability thresholds for such fiscal year. In no
event shall the amount of Cash Incentive Compensation paid to Executive for any
fiscal year exceed two hundred percent (200%) of his target Cash Incentive
Compensation for such year.
 
 
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Payment of the Cash Incentive Compensation for each fiscal year will be made in
accordance with the general policies and procedures for payment of incentive
compensation to senior executive personnel of the Company. For the period from
the Effective Date through February 3, 2007 (the last day of the Company’s 2007
fiscal year), the target Cash Incentive Compensation shall be pro-rated at
$262,500; provided, that $131,250 of such pro-rated amount (the “Fiscal 2007
Incentive Guarantee”) shall not be subject to performance goals or similar
criteria.
 
(c)  Equity-Based Incentive Compensation. On the Effective Date, the Company
will grant to the Executive options to purchase 550,000 shares of the Company’s
common stock, par value $1.00 per share (“Common Stock”), with an exercise price
per share equal to the closing sale price of a share of Common Stock as quoted
on the New York Stock Exchange on such date (the “Option Award”) and a
three-year vesting period. The terms and conditions relating to the Option Award
are set forth in the form of stock option agreement attached hereto as Exhibit A
(the “Option Award Agreement”).
 
(d)  Employee Benefits: Fringe Benefits. During the Employment Term, the
Executive and his eligible dependents (where applicable) shall have the right to
participate in each retirement, pension, insurance, health and other benefit
plan or program that has been or is hereafter adopted by the Company (or in
which the Company participates) according to the terms of such plan or program
with all the benefits, rights and privileges as are generally enjoyed by senior
executive personnel of the Company; provided, however, that no policy adopted by
the Company or the Board for the benefit of executives who do not have
employment agreements (for example, the Bombay Executive Management Severance
Policy) shall apply to the Executive in a manner that would conflict with any
term in this Agreement, or expand on or increase any benefit specifically
granted in this Agreement. The Executive also shall be entitled to all fringe
benefits, if any, that generally are enjoyed by senior executive personnel of
the Company. Regardless of whether such benefits are available to other senior
executives, the Executive shall be entitled to the following benefits at the
expense of the Company:
 
(1)  supplemental long-term disability insurance that, collectively with the
Company’s other disability insurance plans, provides the Executive with an
annual benefit equal to sixty percent (60%) of the Executive’s Base Compensation
and target Cash Incentive Compensation in effect on the date that he becomes
disabled; provided, that such coverage shall not commence until sixty (60) days
after the Effective Date;
 
(2)  a supplemental life insurance policy that, collectively with the Company’s
other life insurance policies, provides the Executive with term life insurance
coverage in an amount equal to one and one-half (1.5) times his Base
Compensation and target Cash Incentive Compensation in effect at any time during
the Employment Term;
 
 
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(3)  annual physical medical examination and evaluation the total expense of
which shall not exceed $5,000 per year;
 
(4)  first class ticketing on all air travel for Business purposes;
 
(5)  a one-time reimbursement for the Executive’s actual, out-of-pocket legal
fees and expenses incurred in the preparation, review and negotiation of this
Agreement;
 
(6)  a one-time reimbursement for the reasonable, documented out-of-pocket costs
incurred by the Executive in connection with relocating his primary residence
from Toronto, Ontario to the Dallas/Fort Worth area, including (i) real estate
commissions of up to six percent (6%) on the sale of the Executive’s current
Toronto residence, (ii) packing and moving costs, (iii) up to three (3) months
temporary apartment rent, utility expenses and automobile rental in the
Dallas/Fort Worth area, and (iv) up to three (3) trips, with the Executive’s
spouse, to the Dallas/Fort Worth area to purchase a home in that area, including
airfare first class, hotel, car rental and meals; provided, that the Executive
shall submit to the Company’s Lead Director, in advance, any such expense (or
series of related expenses) that will exceed $10,000, and reimbursement of such
expense shall be subject to the prior approval of the Lead Director (which
approval shall not be withheld if such expense is reasonable and within the
parameters described in this paragraph (6)). The Executive shall use his
reasonable best efforts (taking into account his duties to the Company pursuant
to this Agreement) to complete his move and establish a primary residence in the
Dallas/Fort Worth area on or before September 1, 2006. The Company also shall
pay to the Executive an additional, one-time amount equal to all federal, state,
local and foreign income and employment tax liability that the Executive owes as
a result of the Company’s reimbursement of the relocation and moving expenses
described in this paragraph (6), to substantially the effect that the Executive
shall receive the benefit of the relocation and moving expense reimbursements as
if there were no federal, state, local and foreign income and employment tax for
such reimbursements; and
 
(7)  a one-time reimbursement for the reasonable, documented out-of-pocket costs
incurred by the Executive in connection with his making a reasonable number of
personal trips to Canada between the Effective Date and the earlier of September
1, 2006 or the date on which the Executive actually establishes his primary
residence in the Dallas/Fort Worth area, including first class ticketing on air
travel.
 
(e)  Vacation; Sick Leave; Holidays; Leaves of Absence. The Executive shall be
entitled to four (4) weeks of paid vacation leave each year on dates mutually
agreed upon by the Company and the Executive. The Executive also shall be
entitled to the same paid holidays provided to the other employees of the
Company. In addition, the Executive may be granted leaves of absence with pay
for such valid and legitimate reasons as the Board in its sole and absolute
discretion may determine or as required by law.
 
 
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(f)  Expenses. The Executive shall be entitled to receive reimbursement for all
reasonable and necessary expenses incurred by him in connection with the
performance of his Company related duties under this Agreement, subject to the
Executive’s compliance in all material respects with the Company’s reasonable
policies for recording such expenses and for submitting them for reimbursement.
 
(g)  Taxes. Except as specifically provided for herein, the Executive shall be
responsible for payment of all federal, state, and local income and employment
taxes, any applicable excise taxes, and any other government assessments owing
by the Executive for all benefits received pursuant to this Agreement. All
payments required to be made by the Company hereunder and all other benefits
provided to the Executive hereunder shall be subject to the withholding of such
amounts relating to taxes and other government assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
 
4.  Termination and Termination Benefits.
 
(a)  Termination by the Company.
 
(1)  For Cause. The Company may terminate the Employment Term and the
Executive’s employment under this Agreement for “Cause” (as defined below) by
written notice to the Executive. The Executive’s employment hereunder shall
terminate immediately upon his receipt of such notice unless the Company
specifies a later effective date of termination therein. In the event of such a
termination, the Company shall provide the Executive (A) the Base Compensation
earned but not paid to the Executive prior to the effective date of termination,
(B) the benefits described in Section 3(d) through the effective date of
termination, (C) a cash payment in lieu of the Executive’s accrued vacation
leave provided for in Section 3(e) that is unused as of the effective date of
termination, (D) reimbursement pursuant to Section 3(f) and then only for
expenses incurred up to the effective date of termination and (E) any unpaid
Cash Incentive Compensation for a prior fiscal year of the Company. In addition,
options for Common Stock which have vested in favor of the Executive prior to
the date of termination shall remain exercisable by the Executive or his estate,
as applicable, in whole or in part until the earlier of (i) the date that is
ninety (90) days after termination of employment (or such later date as is set
forth in any applicable stock option agreement) or (ii) the last day of the
original term of the option. The payments and benefits described in (A)-(E) of
this paragraph shall be referred to hereinafter as the “Accrued Obligations”.
Except for the foregoing Accrued Obligations, the Company shall have no further
obligations or liability to the Executive under this Agreement.
 
For purposes of this Agreement, “Cause” means (1) the Executive’s substantial
failure to perform his duties under this Agreement if not remedied in all
material respects by the Executive within thirty (30) days after receipt of a
written notice from the Company specifying such failure in reasonable detail,
(2) fraud, misconduct or neglect by the Executive that causes or is likely to
cause material harm to the Company (such misconduct may include, without
limitation, insobriety at the workplace during working hours or the use of
illegal drugs), (3) any failure to follow directions of the Board that are
consistent with the Executive’s duties under this Agreement that results in
material harm to the Company, if not remedied in all material respects by the
Executive within ten (10) days after receipt of a written notice from the Board
specifying such failure in reasonable detail, (4) the Executive’s conviction of,
or entry of a pleading of guilty or nolo contendre to, any crime involving moral
turpitude, or the entry of an order duly issued by any federal or state
regulatory agency having jurisdiction in the matter permanently prohibiting the
Executive from participating in the conduct of the affairs of the Company or (5)
any other breach of this Agreement by the Executive that is not remedied in all
material respects within 30 days after receipt of written notice from the
Company specifying such breach in reasonable detail.
 
 
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(2)  Without Cause. The Company may terminate the Employment Term and the
Executive’s employment under this Agreement without Cause by written notice to
the Executive. The Executive’s employment hereunder shall terminate immediately
upon the receipt of such notice unless the Company specifies a later effective
date of termination therein. If the Company terminates the Executive’s
employment without Cause, subject to Sections 4(a)(2)(D) and 4(a)(2)(E) below:
 
(A)  The Company shall pay the Executive, or his estate, as applicable, a base
severance equal to eighteen (18) months of the Executive’s Base Compensation (as
in effect on the date of such termination), payable periodically (subject to
Section 9(m) below) in substantially equal installments over a twelve (12) month
period immediately following such termination (the “Severance Payment Period”),
provided, however, that any amounts paid on or after the first day of the
seventh month of the Severance Payment Period shall be subject to offset by any
earnings resulting from the Executive’s employment by another employer during
such period. For purposes of clarity, any amounts payable pursuant to this
paragraph during the first six months of the Severance Pay Period shall not be
subject to offset by any earnings resulting from the Executive’s employment by
another employer during such period. Any amounts payable pursuant to this
paragraph shall be paid in accordance with the Company’s general policies and
procedures for payment of compensation to senior executive personnel of the
Company as implemented by the Board and subject to withholding for applicable
federal, state, local and foreign taxes.
 
(B)  Subject to the Company’s achievement of the applicable performance
objectives and at the time that the Company’s other senior executives receive
their incentive bonus payments for the fiscal year in which the Executive’s
employment under this Agreement was terminated, the Executive shall be eligible
to receive an additional severance payment equal to the amount of the Cash
Incentive Compensation, if any, that would have been paid to the Executive under
the provisions of Section 3(g) hereof for the fiscal year of the Executive’s
termination, prorated based on the number of days in such fiscal year during
which the Executive served as the Company’s Chief Executive Officer. Such amount
shall be paid to the Executive in accordance with the general policies and
procedures for payment of compensation to senior executive personnel of the
Company as implemented by the Board, subject to withholding for applicable
federal, state, local and foreign taxes. Notwithstanding the above, the amount
paid pursuant to this paragraph (B) shall be no less than the Fiscal 2007
Incentive Guarantee if such termination occurs prior to the Executive’s receipt
of the Cash Incentive Compensation for the 2007 fiscal year.
 
(C)  The Company shall continue to provide for eighteen (18) months the same
level of medical, vision and dental insurance benefits (collectively, the
“Welfare Benefits”) for the Executive and the Executive’s eligible dependents in
the same manner as the Company provided for them at the time of termination of
the Executive’s employment.
 
 
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(D)  The Company shall pay and provide the Executive the Accrued Obligations.
 
(E)  Contemporaneously with such termination, the unvested stock options for
Common Stock and any shares of restricted stock, restricted stock units and
other equity incentives previously granted to the Executive by the Company shall
become vested, nonforfeitable and exercisable in accordance with the provisions,
if any, concerning vesting and exercisability in any applicable plan or
agreement relating to such grants. The Executive or his estate (as applicable)
may continue to exercise all or any part of the vested stock options for Common
Stock held immediately following termination until the earlier of (i) the date
that is six (6) months thereafter (or such longer period as is set forth in any
applicable stock option agreement) or (ii) the last day of the original term of
the option.
 
(F)  Notwithstanding anything contained herein to the contrary, if the Executive
materially violates and fails to timely cure the provisions of Sections 7 or 8
of this Agreement (the “Restrictive Covenants”) at any time while the Company is
obligated to make severance payments or provide severance benefits under this
Section 4(a), the Company may send the Executive written notice that specifies
in reasonable detail the circumstances surrounding the material violation. If
the Executive does not cease the activities that are materially violating the
Restrictive Covenants within ten (10) days following the date of receipt of the
Company’s written notice to the Executive, then, in addition to any and all
other rights that the Company may have at law or in equity, the Company may
permanently cancel and terminate such severance payments and benefits provided
for in this Section 4(a)(2) that then remain to be paid or provided.
 
(G)  The Executive agrees that the Company’s obligation to pay severance pay, if
any, will arise only after the Executive’s employment has terminated and only if
the Executive signs and returns a general release and waiver of all claims the
Executive may have against the Company and its directors, officers, subsidiaries
and affiliates, except as to (i) matters covered by provisions of this Agreement
that expressly survive the termination of the Employment Term and the
Executive’s employment (including rights to enforce this Agreement), (ii) rights
to indemnification and insurance under the Charter, By-Laws and directors and
officers insurance policies maintained by the Company, and (iii) rights to which
the Executive is entitled by virtue of his participation in the employee benefit
plans, policies and arrangements of the Company. The Executive further
acknowledges and agrees that severance pay, if any, constitutes consideration
for the Executive’s release of claims at the time of termination.  In the event
the Executive declines to sign the release, he shall not be entitled to any
severance, and the Company will have no further liability or obligation to the
Executive under this Agreement or in connection with his employment or
termination.
 
 
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(3)  Disability. If due to illness, physical or mental disability, or other
incapacity which cannot be reasonably accommodated, the Executive shall fail,
for a total of any ninety (90) days or more within any period of twelve (12)
consecutive months, to perform the duties required by this Agreement, the Board
may terminate the Employment Term and Executive’s employment under this
Agreement; provided, however, that prior to any such termination, the Company
shall have given the Executive at least thirty (30) days’ advance written notice
that it is terminating the Executive’s employment due to disability, and the
Executive shall not have returned to full-time employment by the thirtieth
(30th) day after such notice. In such event, the Company shall provide the
Executive the Accrued Obligations and the Executive shall not be entitled to any
other severance compensation or payments of this Agreement. The Executive or his
estate, as applicable, shall have until the date that is twelve (12) months
following such termination (or such later date as is set forth in any applicable
stock option agreement) or, if earlier, the last day of the original term of the
option, to exercise all or any part of vested stock options for Common Stock
that are held by the Executive on the date of termination.
 
(b)  Termination by the Executive.
 
(1)  Resignation Without Company Breach. The Executive may voluntarily terminate
the Employment Term and his employment hereunder upon ninety (90) days’ prior
written notice to the Company. Such a termination shall be effective ninety (90)
days after the delivery of such notice unless the Executive and the Company
agree in writing to another effective date; provided, that the Company may
immediately terminate the Executive’s service upon payment of the Base
Compensation for any remainder of such notice period. In the event of such a
termination, the Company shall pay and provide to the Executive the Accrued
Obligations, and the Company shall thereafter have no further obligation or
liability to the Executive under this Agreement (other than with respect to
options for Common Stock which have vested in favor of the Executive prior to
the date of termination, which shall remain exercisable by the Executive or his
estate, as applicable, in whole or in part until the earlier of (i) the date
that is ninety (90) days after termination of employment (or such later date as
is set forth in any applicable stock option agreement) or (ii) the last day of
the original term of the option.
 
(2)  Resignation Upon Company Breach. Upon the occurrence of a Company Breach
(defined below), the Executive may provide the Company with a written notice
that specifies in reasonable detail the circumstances surrounding the alleged
Company Breach. If such Company Breach is not cured within thirty (30) days of
the Company’s receipt of such notice, then the Executive may terminate his
employment hereunder by written notice to the Company. The Executive’s
employment hereunder shall terminate immediately upon the delivery of such
termination notice unless the Executive specifies a later effective date of
termination therein. Upon such termination, the Executive shall, subject to the
provisions of Sections 4(a)(2)(F) and (G) hereof, be entitled to receive the
payments and benefits specified in Sections 4(a)(2)(A)-(D) hereof.
 
For the purposes of this Agreement, “Company Breach” means: (i) a change in the
Executive’s duties or responsibilities as an officer of the Company that
represents a reduction of the duties or responsibilities as in effect
immediately prior thereto; (ii) a change by the Board in the duties or
responsibilities of other senior executive officers of the Company that have the
effect of precluding the Executive from effectively performing his duties and
responsibilities; (iii) a material reduction in the Executive’s Base
Compensation without the Executive’s consent (other than a reduction that is
proportionately comparable to reductions implemented by the Board, and approved
or recommended by the Executive, for substantially all the senior executives of
the Company); (iv) the Company requiring the Executive to be based at any place
which either (A) is outside a fifty (50) mile radius of the Company’s Fort
Worth, Texas headquarters location as in use on the date of this Agreement,
except for reasonable travel on behalf of the Company or (B) increases the
Executive’s commute by more than thirty-five (35) miles; (iv) the failure of the
Company to nominate the Executive to serve as a director on the Board; or (v)
any material breach by the Company of any provision of this Agreement. An action
or inaction by the Company shall constitute a Company Breach only if the Company
does not cure such alleged Company Breach within thirty (30) days after the
Executive delivers written notice to the Company declaring that an action or
inaction of the Company, if not so cured, will constitute a Company Breach
hereunder. 
 
 
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(c)  Additional Effects of Termination. The Executive’s obligations and
liabilities to the Company under this Agreement shall cease as of the effective
date of any termination pursuant to Sections 4(a) or 4(b), except that his
obligations under the Restrictive Covenants shall survive and continue following
any such termination.
 
(d)  Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of the Executive’s death. In such event,
the Executive’s estate shall be paid the Executive’s Base Compensation earned
but not paid prior to the date of his death, plus any Cash Incentive
Compensation earned but not paid prior to his death. In addition, upon the death
of the Executive, the Company shall (A) pay and provide the Executive’s estate
the Accrued Obligations and (B) continue to provide for 90 days, at the
Company’s expense, the same level of health insurance benefits for the
Executive’s eligible dependents as the Company provided for them at the time of
the Executive’s death.
 
(e)  Expiration. Expiration of this Agreement in accordance with its terms on
the three year anniversary shall not be, and shall not be deemed to be, a
termination by the Company.
 
(f)  No Duty to Mitigate. In the event of any termination of the Executive’s
employment hereunder, the Executive shall be under no obligation to seek other
employment or otherwise mitigate the obligations of the Company under this
Agreement.
 
(g)  Board Seat. Upon the termination of the Executive’s employment for any
reason, if the Executive serves on the Board of the Company or any “Affiliate”
(as defined below), or holds a position as an officer or committee member of the
Company or any Affiliate, at the time of such termination, the Executive shall
promptly resign from all such positions by delivery of written notice to such
effect.
 
5.  Change of Control.
 
(a)  Definitions. For the purposes of this Agreement:
 
“Affiliate” shall have the meaning given in Rule 405 promulgated under the
Securities Act of 1933, as amended.
 
“Change of Control” shall mean any of the following:
 
(i)  the acquisition, other than from the Company, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the “Exchange Act”)) of beneficial ownership of 20% or
more of either the then outstanding shares of Common Stock of the Company or the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally either in the election of directors of the Company or
for the termination of the chief executive officer of the Company; provided,
however, that any acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its subsidiaries, or
any corporation with respect to which following such acquisition, more than
fifty percent (50%) of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation 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, respectively, of the Common Stock and voting securities of the Company
immediately prior to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the then outstanding
shares of Common Stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors, as the case may be, shall not constitute a Change of
Control;
 
 
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(ii)  individuals who, as of the Effective Date, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute at least a majority of the
Board, provided that any individual becoming a director subsequent to such date
whose election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company; or
 
(iii)  approval by the shareholders of the Company of a reorganization, merger
or consolidation of the Company, in each case, with respect to which the
individuals and entities who were the respective beneficial owners of the Common
Stock and voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than
fifty percent (50%) of, respectively, the then outstanding shares of Common
Stock and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or consolidation, or
a complete liquidation or dissolution of the Company or of the sale or other
disposition of all or substantially all of the assets of the Company.
 
“Change of Control Amount” shall mean an amount equal to two (2) times the sum
of (i) the Base Compensation in effect immediately prior to a Change of Control
plus (ii) the average of the Cash Incentive Compensation payment for the two (2)
years prior to a Change of Control, or, if the Executive has been employed by
the Company for less than two (2) years at the time of the Change of Control,
(A) the amount of the Executive’s last Cash Incentive Compensation payment, if
at least one such payment has been made, or (B) the target Cash Incentive
Compensation for the year in which the Change of Control occurs (without regard
to the second paragraph of Section 3(b)), if at least one such payment has not
been made.
 
(b)  Change of Control Benefit. If (i) a Change of Control has occurred and (ii)
within two (2) years thereafter, the Executive’s employment with the Company
terminates for any reason other than (1) termination by the Company for Cause or
(2) termination by the Executive for other than Company Breach, then the Company
shall pay to the Executive within seven (7) days following such termination a
lump sum cash payment equal to the Change of Control Amount. The receipt of such
Change of Control Amount shall be in lieu of any right of payment that the
Executive may have in connection with such termination of employment whether
pursuant to Section 4(a)(2)(A) (whether in connection with the Executive’s
termination of employment by the Company without Cause or his resignation due to
Company Breach). Additionally, if the Company becomes obligated to pay the
Change of Control Amount as specified herein, then (A) all unvested options for
Common Stock held by the Executive shall immediately vest, and all previously
vested and newly vested stock options then held by the Executive shall remain
exercisable by the Executive or his estate (in whole or part) at any time and
from time to time for a period of one (1) year thereafter (or, if earlier, until
the last day of the original term of the option), (B) all shares of restricted
stock, restricted stock units and other equity incentives shall become fully
vested, nonforfeitable and immediately paid and (C) the surviving corporation
(or its successor) shall continue to provide, for a period of twenty-four (24)
months, the Executive (and his dependents as in effect on the date of the Change
of Control) with the Welfare Benefits. Notwithstanding the foregoing provisions
of this Section 5(b), if, within the six (6) month period immediately prior to
the Change of Control, the Executive’s employment with the Company is terminated
by the Company for any reason other than (x) termination by the Company for
Cause or (y) termination by the Executive for other than Company Breach, then
for purposes of this Agreement, such termination shall be deemed to have
occurred immediately following a Change of Control and the Executive shall be
entitled to the payments and benefits described in this Section 5(b).
 
6.  Certain Change of Control Benefit Adjustments. Notwithstanding anything in
this Agreement to the contrary, in the event it shall be determined that any
payment or distribution made, or benefit provided, by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable or provided pursuant to the terms hereof or otherwise) would
constitute a “parachute payment” as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”), then the severance payment
payable pursuant to this Agreement, at the election of the Executive, may be
reduced so that the aggregate present value of all payments in the nature of
compensation to (or for the benefit of) the Executive which are contingent on a
change of control (as defined in Code Section 280G(b)(2)(A)) is One Dollar
($1.00) less than the amount which the Executive could receive without being
considered to have received any parachute payment (the amount of this reduction
in the severance payment is referred to herein as the “Excess Amount”). The
determination of the amount of any reduction required to meet the dollar
threshold described in the preceding sentence shall be made by an independent
accounting firm (other than the Company’s independent accounting firm) selected
by the Company and acceptable to the Executive, and such determination shall be
conclusive and binding on the parties hereto.
 
 
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7.  Confidential Information.
 
(a)  Acknowledgment. The Company shall provide the Executive with confidential
proprietary information of the Company, including information regarding costs,
profits, markets, sales, products, key personnel, pricing policies, operational
methods, other business methods, plans for future developments, and other
information not readily available to the public, the disclosure of which to
third parties would in each case have a material adverse effect on the Company’s
Business operations (“Confidential Information”).
 
(b)  Agreement Regarding Confidentiality. The Executive will keep secret, during
and after the termination of his employment, all Confidential Information and
will not use or disclose Confidential Information to anyone outside of the
Company other than in the course of performance of his duties under this
Agreement, except that (i) the Executive shall have no such obligation to the
extent Confidential Information is or becomes publicly known other than as a
result of the Executive’s breach of his obligations hereunder, and (ii) the
Executive may disclose such matters (A) to his counsel to the extent reasonably
related to, and in the course of, their representation of him and (B) to the
extent required by applicable laws, governmental regulations or judicial or
regulatory processes.
 
(c)  Return of Records. The Executive will deliver promptly to the Company on
termination of his employment by the Company, or at any other time the Board may
so request, all memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Company’s Business that he obtained while
employed by, or otherwise serving or acting on behalf of, the Company and that
he may then possess or have under his control; provided that the Executive may
retain a copy of his personal contact list. In the event the Executive fails to
comply with his obligations under this Section 7(c), the Company shall be
entitled to injunctive relief enforcing such obligations to the extent
reasonably necessary to protect the Company’s interests.
 
8.  Noncompetition.
 
(a)  In exchange for the Company’s agreement to provide Confidential Information
to the Executive, during the Executive’s employment under this Agreement and for
a period of eighteen (18) months after the Executive’s termination, the
Executive will not, without the prior written approval of a majority of the
members of the Board (not including the Executive), (i) engage directly or
indirectly in, or become employed by, serve as an agent or consultant to or
become an officer, director, partner, principal or stockholder of any
association, group, partnership, person, corporation or other entity which is
engaged in a business in the United States or Canada that (A) is located in a
region of the United States or Canada in which the Company conducts its Business
and (B) competes with the Business, or (ii) directly or indirectly seek, solicit
or accept for employment or retention as an independent contractor any person
who (X) was, at the time of the Executive’s termination of employment or during
the three (3) month period prior thereto, employed by the Company or retained by
the Company as an independent contractor who performed a substantial majority of
his, her or its services for the Company, and (Y) had a level of seniority
equivalent to at least the seniority held by a district sales manager of the
Company or (iii) directly or indirectly seek, solicit or accept the business of
any person, partnership, corporation, entity, association or group of any kind
that was (1) a customer of the Company (other than a retail customer), (2) a
supplier of a type of product sold by the Company, (3) an actively solicited
prospective customer of the Company (other than a retail customer) or (4) an
actively solicited prospective supplier of a type of product sold by the
Company, in each case, at the time of the Executive’s termination of employment
or during the six (6) month period prior thereto. As long as the Executive does
not engage in any other activity prohibited by this Section 8(a), the
Executive’s ownership of less than 2% of the issued and outstanding stock of any
corporation whose stock is traded on an established national securities market
shall not constitute an activity prohibited under this Section 8(a).
 
(b)  Specific Performance. If the Executive breaches or threatens to commit a
breach of the provisions of Sections 7 or 8 hereof, the Company shall have the
right to have such Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened breach (if
carried out) of the Restrictive Covenants would cause irreparable injury to the
Company and that money damages would not provide an adequate remedy for such
injury. Accordingly, the Company shall be entitled to injunctive relief to
enforce the terms of the Restrictive Covenants and to restrain the Executive
from any violation thereof, without the need to post any type of bond or other
form of security in connection with such relief and enforcement. The rights and
remedies set forth in this Section 8(b) shall be independent of all other others
rights and remedies available to the Company for a breach of the Restrictive
Covenants, and shall be severally enforceable from, in addition to, and not in
lieu of, any other rights and remedies available at law or in equity.
Notwithstanding the foregoing, if the breach or threatened breach by the
Executive of the Restrictive Covenants is of the type that can be cured by the
Executive, the Company shall provide the Executive with ten (10) days’ prior
written notice before seeking such specific performance, and the Company shall
not seek such relief if the Executive, within such ten (10) day period, fully
cures any such breach or delivers a sworn written affidavit to the Company
stating that he will not commit such threatened breach, as applicable.
 
 
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(c)  Tolling. If Executive violates any of the restrictions contained in this
Section 8, the restrictive period will be suspended and will not run in favor of
Executive from the time of the commencement of any violation until the time when
Executive cures the violation to the satisfaction of the Company.
 
(d)  Reformation. The courts enforcing this Agreement shall be entitled to
modify the duration and scope of any restriction contained herein to the extent
such restriction would otherwise be unenforceable, and such restriction as
modified shall be enforced. Executive acknowledges that the restrictions imposed
by this Agreement are legitimate, reasonable and necessary to protect the
Company’s investment in its businesses and the goodwill thereof. Executive
acknowledges that the scope and duration of the restrictions contained herein
are reasonable in light of the time that Executive has been engaged in the
business of the Company, Executive’s reputation in the markets for the Company’s
business and Executive’s relationship with the suppliers, customers and clients
of the Company.
 
9.  Miscellaneous.
 
(a)  Integration; Amendment. This Agreement constitutes the entire agreement
among the parties hereto with respect to the matters set forth herein and
supersedes and renders of no force and effect all prior understandings and
agreements among the parties with respect to the matters set forth herein. No
amendments or additions to this Agreement shall be binding unless in writing and
signed by the Executive and the Company.
 
(b)  Assignment. The Company may assign this Agreement to any successor by
operation of law or purchaser of all or substantially all of the assets of the
Company. The Company shall, following any permitted assignment, remain liable
and responsible for all obligations of the Company hereunder. The Executive may
not assign this Agreement or any right or interest therein, whether by operation
of law or otherwise, without the prior written consent of the Company.
 
(c)  Severability. If any part of this Agreement is contrary to, prohibited by,
or deemed invalid under applicable law or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited, or
invalid, but the remainder of this Agreement shall not be invalid and shall be
given full force and effect so far as possible.
 
(d)  Waivers. The failure or delay of any party at any time to require
performance by any other party of any provision of this Agreement, even if
known, shall not affect the right of such party to require performance of that
provision or to exercise any right, power, or remedy hereunder, and any waiver
by any party of any breach of any provision of this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power, or remedy
under this Agreement. No notice to or demand on any party in any case shall, of
itself, entitle such party to any other or further notice or demand in similar
or other circumstances.
 
(e)  Power and Authority. The Company represents and warrants to the Executive
that it has the requisite corporate power to enter into this Agreement and
perform the terms hereof, and that the execution, delivery and performance of
this Agreement by it has been duly authorized by all appropriate corporate
action.
 
 
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(f)  Burden and Benefit. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors, personal
and legal representatives, successors and, subject to Section 9(b) above,
assigns. Any provision of this Agreement which by its terms requires performance
beyond the term of this Agreement shall survive the term of this Agreement in
accordance with the terms of such provision.
 
(g)  Time Is of the Essence. Time is of the essence for all purposes of this
Agreement.
 
(h)  Jurisdiction; Venue; Legal Fees. Jurisdiction and venue for any action
arising out of this Agreement shall be in the appropriate State or Federal
courts in Tarrant County, Texas.
 
(i)  Governing Law; Headings. This Agreement and its construction, performance,
and enforceability shall be governed by, and construed in accordance with, the
laws of the State of Texas. Headings and titles herein are included solely for
convenience and shall not affect the interpretation of this Agreement.
 
(j)  Notices. All notices called for under this Agreement shall be in writing
and shall be deemed given upon receipt if delivered personally or by facsimile
transmission and followed promptly by mail, or mailed by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice; provided that notices of a change of address shall be effective
only upon receipt thereof):
 
If to the Executive:
 

 
David B. Stewart
 
2855 Bloor Street W, Unit 440
 
Toronto, Ontario M8X3A1
 
Telephone: 416-233-2217
 
With a copy to:
 
Paul, Weiss, Rifkind, Wharton & Garrison, LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Michael J. Segal, Esq.
Facsimile: 212-757-3990
 
If to the Company:
 

 
The Bombay Company, Inc.
 
550 Bailey Avenue
 
Fort Worth, Texas 76107-2111
 
Attn: General Counsel
 
Facsimile: 817-339-3739
 
 
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Any notice delivered to the party hereto to whom it is addressed shall be deemed
to have been given and received on the day it was received; provided, however,
that if such day is not a business day then the notice shall be deemed to have
been given and received on the business day next following such day. Any notice
sent by facsimile transmission shall be deemed to have been given and received
on the next business day following the day of transmission.
 
(k)  Counterparts. This Agreement may be executed in one or more counterparts,
each of which counterparts shall be deemed to be an original, and all such
counterparts shall constitute one and the same agreement.
 
(l)  No Strict Construction. The parties hereto confirm that they have each
participated in the negotiation and preparation of this Agreement and that this
Agreement represents the joint agreement and understanding of the parties. The
language used in this Agreement has been mutually chosen by the parties hereto,
and no rule of strict construction construing ambiguities against any party
hereto shall be applied.
 
(m)  Delay of Severance Benefits. Notwithstanding anything to the contrary
contained herein, in the event any payments made upon termination of the
Executive’s employment pursuant to Section 4 or Section 5 hereof are deemed to
be subject to (and not otherwise exempt from) the requirements of Code Section
409A, and the Executive is deemed a “specified employee” (as defined in Code
Section 409A), then, if and to the extent required to avoid tax penalties
pursuant to Code Section 409A, the Executive shall not be entitled to any such
payments that are subject to Code Section 409A until the first day of the
seventh month following the date of his termination; provided, however, that the
aggregate amount of any payments (plus interest at the prime interest rate in
effect upon termination of employment) that would have otherwise been paid
during such six month delay period shall be paid on the first day of the seventh
month following the Executive’s termination of employment.
 
 
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***************
 

IN WITNESS WHEREOF, the parties have duly executed this Agreement, or caused
this Agreement to be duly executed on their behalf, as of the date first above
written.
 
THE BOMBAY COMPANY, INC.

By:       /s/MICHAEL J. VEITENHEIMER
Name:  Michael J. Veitenheimer
Title:    Senior Vice President, Secretary
             and General Counsel
Date:    June 5, 2006

/s/ DAVID B. STEWART
David B. Stewart

 
 
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EXHIBIT A
 
OPTION AWARD AGREEMENT
 

 
 
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