Exhibit 10.7


 


EMPLOYMENT SECURITY AGREEMENT


 


This Employment Security
Agreement (the “Agreement”) is between Zale Corporation (“Company”)
and the undersigned Senior Vice President of Company (“Executive”).


 


WHEREAS, in order to achieve its long-term objectives,
Company recognizes that it is essential to attract and retain qualified
executives; and


 


WHEREAS, in consideration of Executive’s valuable service
for, and critical contribution to the success of, Company, Company desires to
provide Executive with certain benefits in the event Executive’s employment is
terminated, either in connection with or unrelated to a Change of Control of
Company, on the terms and subject to the conditions set forth in this
Agreement.  Capitalized terms that are
used in this Agreement but not defined in connection with their use are defined
in Article V.


 


NOW, THEREFORE, in consideration of the promises and of the
mutual covenants herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is agreed as
follows:


 


ARTICLE I

TERMINATION BENEFITS


 


1.1                               General Termination Benefits.  If Executive incurs a Qualifying Termination
other than during a Protection Period, he or she will receive the following
termination benefits:


 


(a)                                  Severance Pay.  Subject to
Sections 1.5 and 2.1(a), Executive will receive Severance Pay in equal
installments commencing on the first ordinary payroll payment date that follows
the date that is sixty (60) days after the date of Termination of Employment
and thereafter in accordance with and at times consistent with Company’s
ordinary payroll practices.


 


(b)                                 Accrued Obligations. 
Executive will be entitled to (i) payment of any earned and unpaid
Base Compensation as of Termination of Employment; (ii) payment of any
earned but unused vacation as of the Termination of Employment, to the extent
such vacation pay is provided under the vacation plan or policy sponsored by
Company that is applicable to Executive; and (iii) any other earned and
unpaid obligations as of the Termination of Employment, including but not
limited to any bonus to which Executive may have become entitled but which has
not yet been paid as of Termination of Employment under the bonus plan or
policy sponsored by Company that is applicable to Executive (the “Accrued
Obligations”).  Accrued Obligations
described in clauses (i) and (ii) above will be paid as part of
Executive’s final ordinary payroll payment from Company for active employment
or contemporaneously with such payment, but in no event later than thirty (30)
days after such Termination of Employment, and Accrued Obligations described in
clause (iii) above will be paid in accordance with the terms of the plan,
policy, agreement or arrangement under which they arose (including with respect
to time of payment or distribution).


 


(c)                                  Continued Welfare Benefits.  Executive and/or Executive’s dependents will
be entitled to elect to continue their respective health or welfare coverage
pursuant to COBRA.  Provided that
Executive and/or Executive’s dependents elect and 


 

















 


maintain such COBRA coverage until the expiration of
their eligibility under COBRA, following such expiration, Executive and/or
Executive’s dependents also will be entitled to elect to continue such coverage
for the remainder, if any, of the Severance Period.  Such health and other welfare benefits will
be provided monthly and will provide the same coverage as available to others
who elect coverage pursuant to COBRA, even though, following the expiration of
Executive’s eligibility for COBRA, it would not be pursuant to COBRA, provided
that the continued participation of Executive and such dependents is possible
under the general terms and provisions of such health or welfare plans.  If Executive’s participation in any such plan
is barred or would result in adverse tax consequences to Executive or Company,
Company will arrange to provide Executive on a monthly basis with benefits
substantially similar to those that Executive otherwise would have been
entitled to receive under such plan or, alternatively at the
option of Company, reimburse Executive on a monthly basis for the reasonable
actual costs of purchasing in the marketplace substantially similar benefits; provided,
however, that, in either case, Executive will pay to Company,
or provide a credit against Company’s reimbursement obligation for, the amount
equal to the premiums that Executive would have been required to pay to
maintain such benefits hereunder.


 


During the Severance Period, Executive’s premiums for coverage provided
pursuant to COBRA will be equal to the premiums Executive paid prior to
Termination of Employment.  All premium
payments paid by Executive and/or Executive’s dependents for coverage will be
paid directly to the appropriate insurer or service provider for such benefit
(which may be Company).  For the
avoidance of doubt, Executive’s continuation of health and welfare benefits
during the Severance Period shall count against Executive’s continuation of
coverage period required under COBRA.


 


Any health or welfare benefits received by or available to Executive
from or in connection with any other employment of Executive, consultancy
arrangement undertaken by Executive or similar source that are reasonably
comparable to, but not necessarily as financially or otherwise beneficial to
Executive as, the benefits provided to Executive by Company at the time of the
Termination of Employment will be deemed the equivalent thereof and will
terminate Company’s obligation under this Section 1.1(c) to provide
health and welfare coverage during the Severance Period; provided, however,
that nothing in this paragraph will limit or terminate Executive’s or Executive’s
dependents’ right to continue any Company group health plan coverage at
Executive’s or such dependent’s cost for the remainder of the COBRA
period.  Executive agrees to advise
Company of the availability of any such subsequent benefit coverages within 30
days following such availability.


 


The provisions of this Section 1.1(c) will
not prohibit Company from changing the terms of any benefit programs provided
that any such changes apply to all executives of Company and its Affiliates (e.g., Company may switch insurance carriers or preferred
provider organizations or change coverages).


 


(d)                                 Outplacement Services.  Executive will be entitled to receive
outplacement services from an entity selected by Company for a period of three (3) months,
provided that such services do not commence later than six (6) months
following 


 


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Termination of Employment.  Company will pay the outplacement service
provider directly for the cost of such outplacement services.


 


(e)                                 Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will expire, unless otherwise
provided in such awards or such Equity Plan. 
Following his or her Termination of Employment, Company will not grant
Executive any equity-based compensation awards.


 


(f)                                   401(k) Plan.  The
terms of the 401(k) Plan will govern Executive’s account balance, if any,
under such 401(k) Plan.


 


1.2                               Termination Benefits in Connection with a Change of Control.  If Executive incurs a Qualifying Termination
during a Protection Period, he or she will receive the following termination
benefits:


 


(a)                                  Severance Pay.  Subject to
Sections 1.5 and 2.1(a), Executive will receive Severance Pay in a single lump-sum within fifteen (15) days after the date on which the general
release required pursuant to Section 2.1(a) is executed and delivered
to Company and becomes irrevocable in accordance with its terms.  Any
Severance Pay payable pursuant to this Section 1.2(a) will be reduced
to the extent that Executive previously received any Severance Pay pursuant to Section 1.1(a).


 


(b)                                 Accrued Obligations. 
Executive will be entitled to payment of any Accrued Obligations in
accordance with the provisions of Section 1.1(b).


 


(c)                                 Continued Welfare Benefits.  Executive and Executive’s dependents will be
entitled to receive health and other welfare benefits in accordance with the
provisions of Section 1.1(c) for the duration of the Severance
Period.


 


(d)                                Outplacement Services.  Executive will be entitled to receive
outplacement services in accordance with the provisions of Section 1.1(d).


 


(e)                                 Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will vest immediately upon
Termination of Employment, unless otherwise provided in such awards or such
Equity Plan.  Following his or her
Termination of Employment, Company will not grant Executive any equity-based
compensation awards.


 


(f)                                   401(k) Plan.  The
terms of the 401(k) Plan will govern Executive’s account balance, if any,
under such 401(k) Plan.


 


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(g)                                Conditional Cap on Severance Pay. If the payments to
Executive pursuant to this Agreement (when considered with all other payments
made to Executive as a result of a Termination of Employment that are subject
to Section 280G of the Code) (the amount of all such payments,
collectively, the “Parachute Payment”) result in Executive becoming
liable for the payment of any excise taxes pursuant to section 4999 of the Code
(“280G Excise Tax”), Executive will receive the greater on an after-tax
basis of (i) the severance benefits payable pursuant to this Section 1.2
or (ii) the severance benefits payable pursuant to this Section 1.2
as reduced to avoid imposition of the 280G Excise Tax (the “Conditional
Capped Amount”).


 


Not more than fourteen (14) days following the Termination of
Employment, Company will notify Executive in writing (A) whether the
severance benefits payable pursuant to this Section 1.2 when added to any
other Parachute Payments payable to Executive exceed an amount equal to 299%
(the “299% Amount”) of Executive’s “base amount” as defined in Section 280G(b)(3) of
the Code, (B) the amount that is equal to the 299% Amount, (C) whether
the severance benefit described in Section 1.2(g)(i) or the
Conditional Capped Amount pursuant to section 1.2(g)(ii) is greater on an
after-tax basis and (C) if the Conditional Capped Amount is the greater
amount, the amount that the severance benefits payable pursuant to this Section 1.2
must be reduced to equal such amount.


 


The calculation of the 299%
Amount, the determination of whether the termination benefits described in Section 1.2(g)(i) or
the Conditional Capped Amount described in Section 1.2(g)(ii) is
greater on an after-tax basis and, if the Conditional Capped Amount in Section 1.2(g)(ii) is
the greater amount, the determination of how much Executive’s termination
benefits must be reduced in order to avoid application of the 280G Excise Tax
will be made by Company’s public accounting firm in accordance with section
280G of the Code or any successor provision thereto.  The costs of
obtaining such determination will be borne by Company.


 


1.3                               Distributions on Account of Death of Executive During the Severance
Period.  If Executive becomes entitled
to Severance Pay pursuant to Section 1.1 or 1.2 and dies during the
Severance Period, the following benefits will be payable:


 


(a)                                  Severance Pay.  Any
remaining Severance Pay payable to Executive as of the date of his or her death
will continue to be paid to Executive’s estate pursuant to Section 1.1 or
1.2, as applicable.


 


(b)                                 Accrued Obligations. 
Executive’s estate will be entitled to payment of any Accrued
Obligations unpaid as of the date of Executive’s death in accordance with the
provisions of Section 1.1(b).


 


(c)                                 Continued Welfare Benefits.  Executive’s dependents will be entitled to
continue to receive any health or other welfare benefits that they received
immediately prior to the date of Executive’s death for the remainder of the
applicable period, subject to the limitations contained in Section 1.1(c).


 


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(d)                                 Outplacement Services.  Any outplacement service benefits available
to Executive pursuant to Section 1.1(d) or 1.2(d) will cease as
of the date of Executive’s death.


 


(e)                                  Equity Compensation Adjustments.  Upon
death of Executive, any equity-based compensation awards granted to
Executive by Company under an Equity Plan that vested prior to Executive’s
death will be governed by the terms of such awards and such Equity Plan.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that are unvested on Executive’s
death will expire, unless otherwise provided in such awards and such Equity
Plan.


 


(f)                                   401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.


 


1.4                            Termination
Benefits in Connection With a Termination Other Than a Qualifying Termination.  If
Executive has a Termination of Employment that is not described in Section 1.1
or 1.2, including due to death or Disability, he or she will receive the
following termination benefits:


 


(a)                                  Severance Pay. 
Executive will not receive any Severance Pay.


 


(b)                                 Accrued Obligations. 
Executive or Executive’s estate, as applicable, will be entitled to
payment of any Accrued Obligations in accordance with the provisions of Section 1.1(b).


 


(c)                                 Continued
Welfare Benefits.  Executive
and/or Executive’s dependants, as applicable, will be entitled to continue
their health and welfare benefits, if any, pursuant to COBRA.


 


(d)                                 Equity Compensation Adjustments.  Any equity-based compensation awards granted to
Executive by Company under an Equity Plan that vested prior to such Termination
of Employment will be governed by the terms of such awards and such Equity
Plan.  Any equity-based compensation
awards granted to Executive by Company under an Equity Plan that are unvested
on Termination of Employment will expire, unless otherwise provided in such
awards or such Equity Plan.  Following his
or her Termination of Employment, Company will not grant Executive any
equity-based compensation awards.


 


(e)                                  401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.


 


1.5                            Code Section 409A.


 


(a)                                  It is the
intention of Company and Executive that the provisions of this Agreement comply
with Section 409A of the Code and the rules, regulations and other
authorities promulgated thereunder (including the transition rules thereof)
(collectively, “409A”), and all provisions of this Agreement will be
construed and interpreted in a manner consistent with 409A.


 


5

















 


(b)                                 To the extent
Executive is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of
the Code and as determined in good faith by Company, notwithstanding the timing
of payment provided in any other Section of this Agreement, no payment,
distribution or benefit under this Agreement that constitutes a distribution of
deferred compensation (within the meaning of Treasury Regulation Section 1.409A-1(b))
upon separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h)),
after taking into account all available exemptions, that would otherwise be
payable during the six-month period after separation from service will be made
during such six-month period, and any such payment, distribution or benefit
will instead be paid on the first business day after such six-month period.


 


(c)                                  In the event
that Company determines that any provision of this Agreement does not comply
with 409A, Company will be entitled, without Executive’s consent, to amend or
modify such provision to comply with 409A; provided, however,
that such amendment or modification will, to the greatest extent commercially
practicable, maintain the economic value to Executive of such provision.


 


(d)                                 For purposes of
409A, each installment of Severance Pay under Section 1.1(a) will be
deemed to be a separate payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).


 


ARTICLE II

EXECUTIVE COVENANTS


 


2.1                               Release;
Covenants.  As a condition
of obtaining benefits under this Agreement, Executive will be required to (a) within
forty-five (45) days following Termination of Employment execute and deliver to
Company a general release of claims against Company in such form as may be
required by Company  and (b) comply
with the covenants set forth in this Article II.  In the event that Executive
fails to execute and deliver such general release within such forty-five-day
period or revokes such general release (but only to the extent revocation is
permitted under the terms of such general release), then Executive will forfeit
all entitlement to any payment, benefit or other amount hereunder.  Executive’s failure to comply with the
covenants of this Article II will be governed by Section 2.7 and Article III.


 


2.2                               Confidential
Information.  Company promises to disclose to Executive and Executive acknowledges
that in and as a result of his or her employment with Company, he or she will
receive, make use of, acquire, have access to and/or become familiar with
various trade secrets and proprietary and confidential information of Company
and its Affiliates, including, but not limited to, processes, computer
programs, compilations of information, records, financial information, sales
reports, sales procedures, customer requirements, pricing techniques, customer
lists, methods of doing business, identities, locations, performance and
compensation levels of employees and other confidential information which are
owned by Company and/or its Affiliates and regularly used in the operation of
its business, and as to which Company and/or its Affiliates take precautions to
prevent dissemination to persons other than certain directors, officers and
employees (collectively, “Trade
Secrets”).  Executive
acknowledges and agrees that the Trade Secrets:


 


(a)                                  are secret and not known in the industry;


 


6

















 


(b)                                give Company or its Affiliates an advantage over competitors who do not
know or use the Trade Secrets;


 


(c)                                 are of such value and nature as to make it reasonable and necessary to
protect and preserve the confidentiality and secrecy of the Trade Secrets; and


 


(d)                                are valuable, special and unique assets of Company or its Affiliates,
the disclosure of which could cause substantial injury and loss of profits and
goodwill to Company or its Affiliates.


 


Executive promises
not to use in any way or disclose any of the Trade Secrets, directly or
indirectly, either during or after his or her employment by Company, except as
required in the course of his or her employment, if required in connection with
a judicial or administrative proceeding, or if the information becomes public
knowledge other than as a result of an unauthorized disclosure by Executive.  All files, records, documents, information,
data compilations and similar items containing non-public and confidential
information relating to the business of Company, whether prepared by Executive
or otherwise coming into his or her possession, will remain the exclusive
property of Company and may not be removed from the premises of Company under
any circumstances without the prior written consent of Company (except in the
ordinary course of business during Executive’s employment by Company), and in
any event must be promptly delivered to Company upon termination of Executive’s
employment with Company.  Executive
agrees that upon receipt of any subpoena, process or other request to produce
or divulge, directly or indirectly, any Trade Secrets to any entity, agency,
tribunal or person, whether received during or after the term of Executive’s
employment with Company, Executive will timely notify and promptly provide a
copy of the subpoena, process or other request to Company.  For this purpose, Executive irrevocably
nominates and appoints Company (including any attorney retained by Company), as
his or her true and lawful attorney-in-fact, to act in Executive’s name, place
and stead to perform any reasonable and prudent act that Executive might
perform to defend and protect against any disclosure of any Trade Secrets.


 


The parties agree that the above restrictions
on confidentiality and disclosure are completely severable and independent
agreements supported by good and valuable consideration and, as such, will
survive the termination of this Agreement for whatever reason. The parties
further agree that any invalidity or unenforceability of any one or more of
such restrictions on confidentiality and disclosure will not render invalid or
unenforceable any remaining restrictions on confidentiality and disclosure.
Additionally, should an arbitrator or court of competent jurisdiction determine
that the scope of any provision of this Section 2.2 is too broad to be
enforced as written, the parties intend that the court reform the provision to
such narrower scope as it determines to be reasonable and enforceable.


 


2.3                               Non-Competition.  As a material inducement for Company’s
promise to provide the trade secrets and proprietary and confidential
information described in Section 2.2, Executive agrees that during the
term of his or her employment with Company and during the applicable Severance
Period specified in Section 5.14, he or she will not, directly or
indirectly, as an employee, consultant or otherwise, compete with Company by
providing services relating to retail or non-retail sales of jewelry to any
other person, partnership, association, corporation, or other entity that is in
a “Competing Business.” As used herein, a “Competing Business” is any
business that, in whole or in material 


 


7

















 


part, in the United States, Canada and/or Puerto
Rico, (a) engages in the retail sale of jewelry, including, but not
limited to, specialty jewelry retailers and other retailers having jewelry
divisions or departments, or (b) operates as a vendor of jewelry,
including, but not limited to, as a wholesaler, manufacturer or direct importer
of jewelry.  The restrictions contained
in this Section 2.3 will be tolled on a day-for-day basis for each day
during which Executive participates in any activity in violation of such
restrictions.


 


The parties agree that, subject to the terms of
Section 2.1, the above restrictions on competition are completely
severable and independent agreements supported by good and valuable
consideration and, as such, will survive the termination of this Agreement for
whatever reason. The parties further agree that any invalidity or
unenforceability of any one or more of such restrictions on competition will not
render invalid or unenforceable any remaining restrictions on competition.
Additionally, should an arbitrator or a court of competent jurisdiction
determine that the scope of any provision of this Section 2.3 is too broad
to be enforced as written, the parties intend that the arbitrator or court
reform the provision to such narrower scope as it determines to be reasonable
and enforceable.


 


2.4                               Agreement
Not to Solicit Employees.  Executive
covenants and agrees that during Executive’s employment with Company and
thereafter during the applicable Severance Period specified in Section 5.14,
Executive will not, on his or her own behalf or on behalf of any other
person, partnership, association, corporation, or other entity, (a) directly,
indirectly, or through a third party hire, cause to be hired or solicit any
employee of Company or its Affiliates or (b) in any manner attempt to
influence or induce any employee of Company or its Affiliates to leave the
employment of Company or its Affiliates, nor will he or she use or disclose to
any person, partnership, association, corporation or other entity any
information concerning the names and addresses of any employees of Company or
its Affiliates.  The restrictions
contained in this Section 2.4 will be tolled on a day-for-day basis for
each day during which Executive participates in any activity in violation of
such restriction.


 


The
parties agree that, subject to the terms of Section 2.1, the above
restrictions on the solicitation of employees are completely severable and
independent agreements supported by good and valuable consideration and, as
such, will survive the termination of this Agreement for whatever reason. The
parties further agree that any invalidity or unenforceability of any one or
more of such restrictions on the solicitation of employees will not render
invalid or unenforceable any remaining restrictions on the solicitation of
employees. Additionally, should an arbitrator or court of competent
jurisdiction determine that the scope of any provision of this Section 2.4
is too broad to be enforced as written, the parties intend that the court
reform the provision to such narrower scope as it determines to be reasonable
and enforceable.


 


2.5                               Nondisparagement.  Executive
covenants and agrees that he or 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, or disparagement of Company, its Affiliates,
its and/or their employees, officers, and/or directors, or which may be
considered to be derogatory or detrimental to its or their good name or
business; provided, however, that the terms of this paragraph
will not (a) apply to Communications between Executive and his or her
spouse, clergy, or attorneys, which are subject to a claim of privilege
existing under common law, statute, or rule of procedure; (b) apply
to 


 


8

















 


Communications required by law or made in response
to a valid subpoena or other lawful order compelling Executive to provide
testimony or information (subject to the provisions of Section 2.2); or (c) be
construed to inhibit or limit Executive’s ability to initiate or cooperate with
any investigation by a governmental or regulatory agency or official or other
judicial or legal actions (subject to the provisions of Section 2.2).  Executive specifically agrees not to issue
any public statement concerning his or her employment by Company and/or the
cessation of such employment.


 


2.6                               Reasonableness of Restrictions.  Executive agrees that Executive and Company
are engaged in a highly competitive business and, due to Executive’s position
with Company and the nature of Executive’s work, Executive’s engaging in any
business that is competitive with that of Company will cause Company great and
irreparable harm.  Executive represents
and warrants that the time, scope and geographic area restricted by the foregoing
Sections 2.2, 2.3, 2.4 and 2.5 pertaining to confidential information,
non-competition, non-solicitation, and non-disparagement are reasonable, that
the enforcement of the restrictions contained in such Sections would not be
unduly burdensome to Executive, and that Executive will be able to earn a
reasonable living while abiding by the terms included herein.  Executive agrees that the restraints created
by the covenants in Sections 2.2, 2.3, 2.4 and 2.5 pertaining to confidential
information, non-competition, non-solicitation, and non-disparagement are not
outweighed by either the hardship to Executive or any injury likely to the
public.  If any arbitrator or court
determines that any portion of this Article II is invalid or
unenforceable, the remainder of this Article II will not thereby be
affected and will be given full effect without regard to the invalid
provisions.  If any court construes any
of the provisions of this Article II, or any part thereof, to be
unreasonable because of the duration or scope of such provision, such court
will have the power to reduce the duration or scope of such provision and to
enforce such provision as so reduced.


 


2.7                               Enforcement.  Upon Executive’s employment with an entity
that is not an Affiliate of Company (a “Successor Employer”) during the
period that the provisions of this Article II remain in effect, Executive
will provide such Successor Employer with a copy of this Agreement and will
notify Company of such employment within thirty (30) days thereof.  Executive agrees that in the event of a
breach of the terms and conditions of this Article II by Executive,
Company will be entitled, if it so elects, to institute and prosecute
proceedings pursuant to Article III, either in law or in equity, against
Executive, to obtain damages for any such breach, or to enjoin Executive from
any conduct in violation of this Article II. In the event Company seeks an
injunction or restraining order against Executive for breach of this Article II,
Executive waives any requirement that Company post bond in connection with such
request for relief.


 


ARTICLE III

DISPUTE RESOLUTION


 


3.1                               Arbitration.  Company and
Executive agree that any controversy or claim (including all claims pursuant to
common and statutory law) relating to this Agreement or arising out of or
relating to the subject matter of this Agreement or Executive’s employment by
Company will be resolved exclusively through binding arbitration.  Subject to the terms and any exceptions
provided in this Agreement, the parties each waive the right to a jury trial
and waive the right to adjudicate their disputes under this Agreement outside
the arbitration forum provided for in this Agreement.  The arbitration will be administered by a
single neutral arbitrator admitted to practice law in Texas for a minimum of
ten years.  


 


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Any such arbitration proceeding will take place in
Dallas County, Texas and will be administered by the American Arbitration
Association (“AAA”)
Dallas office in accordance with its then-current applicable rules and
procedures.  The arbitrator will have the
authority to award the same remedies, damages and costs that a court could
award.  The arbitrator will issue a
reasoned award explaining the decision, the reasons for the decision and any
damages awarded.  The arbitrator’s
decision will be final and binding.  This
provision can be enforced under the Federal Arbitration Act.


 


3.2                               Entitlement
to Injunctive Relief.  As the sole exception to the
exclusive and binding nature of the arbitration commitment set forth above,
Executive and Company agree that Company will have the right to initiate an
action in any state or federal court of competent jurisdiction in Dallas
County, Texas in order to request temporary, preliminary and permanent injunctive
or other equitable relief, including, without limitation, specific performance,
to enforce the terms of Sections 2.2, 2.3, 2.4, or 2.5 above, without the
necessity of proving inadequacy of legal remedies or irreparable harm or
posting bond; provided, however, that if Executive is engaging in activities
prohibited by Section 2.2, 2.3, 2.4 or 2.5 above, outside of Dallas
County, Texas, the parties hereby agree that the Company may, at its sole
option, bring an action in any court of competent jurisdiction.  Nothing herein shall prevent the Company from
pursuing the same injunctive or equitable relief in the arbitration
proceedings.  Moreover, nothing in this
section should be construed to constitute a waiver of the parties’ rights and
obligations to arbitrate regarding matters other than those specifically
addressed in this paragraph.


 


3.3                               Limitation
of Scope.  Should a court of competent
jurisdiction determine that the scope of the arbitration and related provisions
of this Agreement are too broad to be enforced as written, the parties intend
that the court reform the provision to such narrower scope as it determines to
be reasonable and enforceable.


 


3.4                               Payments
Pending Litigation and/or Arbitration. In the case of a
Qualifying Termination other than during a Protection Period, upon the material
violation of any of the provisions of this Agreement or a dispute regarding the
subject matter of this Agreement, Company shall cease payment of all Severance
Pay and severance benefits pending the outcome of litigation and/or arbitration
on such issues pursuant to this Article III.  In the case of a Qualifying Termination
during a Protection Period, upon the material violation of any of the
provisions of this Agreement or a dispute regarding the subject matter of this
Agreement, Company shall continue payment of all Severance Pay and severance
benefits pending the outcome of litigation and/or arbitration pursuant to this Article III,
subject to being reimbursed if so ordered in any such litigation or
arbitration.


 


3.5                               Fees
and Expenses.


 


(a)                                  If Company or
Executive sues in court or brings an arbitration action against the other for a
breach of any provision of this Agreement or regarding any dispute arising from
the subject matter of this Agreement, the prevailing party will be entitled to
recover its attorneys’ fees, court costs, arbitration expenses, and its portion
of the fees charged by AAA and/or the individual arbitrator, as applicable,
regardless of which party initiated the proceedings.  If there is no prevailing party, the fees
charged by AAA and/or the individual arbitrator will be borne equally by
Company and Executive, and Company and Executive will each bear their own 


 


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costs and attorneys’ fees incurred in arbitration.  In the event that Executive prevails on at
least one material issue, Executive will be deemed to be the prevailing party;
provided, however, that if Executive does not prevail on at least one material
issue, the Company shall be deemed to be the prevailing party.


 


3.6                               Right of Offset.  If Executive is
at any time indebted to Company, or otherwise obligated to pay money to Company
for any reason, Company, at its election, may offset amounts otherwise payable
to Executive under this Agreement against any such indebtedness or amounts due
from Executive to Company, to the extent permitted by law.


 


3.7                               Other
Matters and Acknowledgement. 
All proceedings conducted pursuant to this agreement to arbitrate,
including any order, decision or award of the arbitrator, will be kept
confidential by all parties except to the extent necessary to enforce the
award.  EXECUTIVE ACKNOWLEDGES THAT, BY
SIGNING THIS AGREEMENT, EXECUTIVE IS WAIVING ANY RIGHT THAT EXECUTIVE MAY HAVE
TO A JURY TRIAL OR A COURT TRIAL OF ANY EMPLOYMENT-RELATED CLAIM ALLEGED BY
EXECUTIVE.


 


ARTICLE IV

MISCELLANEOUS PROVISIONS


 


4.1                               Executive
Acknowledgement.  Executive
is entering into this Agreement of his or her own free will.  Executive acknowledges that he or she has had
adequate opportunity to review this Agreement and consult with counsel of his
or her own choosing.  Executive
represents that he or she has read and understands this Agreement, he or she is
fully aware of this Agreement’s legal effect and has not acted in reliance upon
any statements made by Company other than those set forth in writing in the
Agreement.


 


4.2                               At Will
Employment. 
Notwithstanding any provision in this Agreement to the contrary,
Executive hereby acknowledges and agrees that Executive’s employment with Company
is for an unspecified duration and constitutes “at-will” employment, and
Executive further acknowledges and agrees that this employment relationship may
be terminated at any time, with or without Cause or for any or no Cause, at the
option either of Company or Executive.


 


4.3                               Successors and Assigns. The rights
and obligations of Company under this Agreement will inure to the benefit of
and will be binding upon the successors and assigns of Company. Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, sale of assets or otherwise) to all or substantially all of the
business and/or assets of Company, by a written agreement in form and substance
reasonably satisfactory to Executive, to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that Company would be
required to perform it if no such succession had taken place.  This Agreement is personal to Executive and
without the prior written consent of Company is not assignable by Executive
otherwise than by will or the laws of descent and distribution.  This Agreement will inure to the benefit of
and be enforceable by Executive’s personal and legal representatives,
executors, administrators, heirs, distributes, devisees and legatees.


 


4.4                               Amendment.  Except as provided in Section 1.5, this
Agreement will not be modified, changed or in any way amended except by an
instrument in writing signed by Company and Executive.


 


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4.5                               Severability.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision will be fully severable; this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement; and
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance from this Agreement. 
Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.


 


4.6                               Integration. The provisions of this
Agreement constitute the entire and complete understanding and agreement
between the parties with respect to the subject matter hereof, and supersede
all prior and contemporaneous oral and written agreements, representations and
understandings of the parties, including without limitation The Executive
Severance Plan for Zale Corporation and its Affiliates and any Change of
Control Agreement or employment agreement (including any offer letter) between
Executive and Company, which are hereby terminated with respect to Executive.


 


4.7                               Choice of Law; Forum Selection. THIS AGREEMENT
WILL BE EXCLUSIVELY GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS OF
TEXAS OR ANY OTHER JURISDICTION, AND, WHERE APPLICABLE, THE LAWS OF THE UNITED
STATES.


 


The parties hereby agree that any action to
enforce the arbitrator’s award shall be filed exclusively in a state or federal
court of competent jurisdiction in Dallas County, Texas and the parties hereby
consent to the exclusive jurisdiction of such court; provided, however, that
nothing herein shall preclude the parties’ rights to conduct collection
activities in the courts of any jurisdiction with respect to the order or
judgment entered upon the arbitrator’s award by the Texas court.


 


4.8                               Survival.  The provisions of Article II, Article III,
this Article IV and Article V will survive the termination of this
Agreement.  The existence of any claim or
cause of action of Executive against the Company, whether predicated on this
Agreement or otherwise, will not constitute a defense to the enforcement by the
Company of the covenants of Executive contained in this Agreement, including
but not limited to those contained in Article II.


 


4.9                               No Waiver.  No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party will be deemed a waiver of
similar or dissimilar provisions or conditions at any time.


 


4.10                        Notice. For all purposes of this
Agreement, all communications required or permitted to be given under this
Agreement will be in writing and will be deemed to have been duly given when
hand delivered or dispatched by electronic facsimile transmission (with receipt
thereof confirmed), or five business days after having been mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or two business days after having been sent by a nationally recognized
overnight courier service, addressed to Company at its principal executive
office, to Company’s General 


 


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Counsel, and to Executive at Executive’s principal
residence, or to such other address as any party may have furnished to the
other in writing, except that notices of change of address will be effective
only upon receipt.


 


4.11                        Counterparts. This Agreement
may be executed in several counterparts, each of which will be deemed to be an
original, but all of which together will constitute one and the same Agreement.


 


4.12                        Construction. This Agreement is deemed to
be drafted equally by both Executive and Company and will be construed as a
whole and according to its fair meaning. 
Any presumption or principle that the language of this Agreement is to
be construed against any party will not apply. The headings in this Agreement
are only for convenience and are not intended to affect construction or
interpretation.  Any references to
paragraphs, subparagraphs, sections, subsections or clauses are to those parts
of this Agreement, unless the context clearly indicates to the contrary.  Also, unless the context clearly indicates to
the contrary, (a) the plural includes the singular and the singular
includes the plural; (b) “and” and “or” are each used both conjunctively
and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all”,
and “each and every”; (d) “includes” and “including” are each used without
limitation; (e) “herein,” “hereof,” “hereunder” and other similar
compounds of the word “here” refer to the entire Agreement and not to any
particular paragraph, subparagraph, section or subsection; and (f) all
pronouns and any variations thereof will be deemed to refer to the masculine,
feminine, neuter, singular or plural as the identity of the entities or persons
referred to may require.


 


4.13                        No Mitigation.  Except as provided in Sections 1.1(c) or
1.2(c) (regarding continued welfare benefits), in no event will Executive
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to Executive under any of the provisions of
this Agreement and such amounts will not be reduced whether or not Executive
obtains other employment.


 


4.14                        Withholding.  Company may deduct and withhold from any
amounts payable under this Agreement such Federal, state, local, foreign or
other taxes as are required to be withheld pursuant to any applicable law or
regulation.


 


ARTICLE V

DEFINITIONS


 


5.1                               “Affiliate” means a corporation that is a member of a
controlled group of corporations (as defined in section 414(b) of the
Code) that includes Company, any trade or business (whether or not
incorporated) that is in common control (as defined in section 414(c) of
the Code) with Company, or any entity that is a member of the same affiliated
service group (as defined in section 414(m) of the Code) as Company.


 


5.2                               “Base Compensation” means Executive’s gross base salary at
the time of his or her Termination of Employment before reduction by any
pre-tax contributions to the 401(k) Plan or any other benefit plan
maintained by the Company or its Affiliates or any other deductions of any
nature.


 


5.3                               “Bonus” means the average of the annual incentive bonus
amount earned by Executive under the applicable Bonus Plan as established by
Company’s Board of Directors with 


 


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respect to the three fiscal years preceding the
fiscal year in which the Termination of Employment occurs (or such lesser
period of Executive’s employment with the Company and its Affiliates).


 


5.4                               “Cause” means (a) Executive’s indictment for a felony or
a crime involving moral turpitude; (b) Executive’s commission of an act
constituting fraud, deceit or material misrepresentation with respect to
Company; (c) Executive’s recurrent use of alcohol or prescribed
medications at work or otherwise such that, in Company’s sole discretion, Executive’s
job performance is impaired or the use of any illegal substances or drug such
that, in Company’s sole discretion, Executive’s job performance is impaired; (d) Executive’s
embezzlement of Company’s or its Affiliates’ assets or funds; and (e) Executive’s
commission of any negligent or willful act or omission that, in the cases of
clauses (b), (d) and (e) of this Section 5.4, causes material
detriment (by reason, without limitation, of financial exposure or loss, damage
to reputation or goodwill, or exposure to civil damages or criminal penalties
or other prosecutorial action by any governmental authority) to Company or any
Affiliate.


 


5.5                               “Change of Control” means any of the following occurrences:


 


(a)                                  any “person,”
as such term is used in Sections 3(a)(9) and 13(d) of the Securities
Exchange Act of 1934 (“Person”),
becomes a “beneficial owner,” as such term is used in Rule 13d-3
promulgated under that Act, of 30% or more of the voting stock of Company;
provided, however, a Change in Control shall not be deemed to occur solely
because any person acquires beneficial ownership of more than 30% of the voting
stock of the Company as a result of the acquisition of voting stock by the
Company which reduces the amount of Company voting stock outstanding; provided
further, that if after such acquisition by the Company such person becomes the
beneficial owner of additional Company voting stock that increases the
percentage of outstanding Company voting stock beneficially owned by such
person, a Change in Control of the Company shall then occur;


 


(b)                                 the majority of
the Board of Directors of Company consists of individuals other than “incumbent”
directors, which term means the members of the Board of Directors on the date
hereof; provided that any person becoming a director subsequent to such date
whose election or nomination for election was supported by two-thirds of the
directors who then comprised the incumbent directors will be considered to be
an incumbent director;


 


(c)                                  Company adopts
any plan of liquidation providing for the distribution of all or substantially
all of its assets;


 


(d)                                 all or
substantially all of the assets or business of Company is disposed of pursuant
to a merger, consolidation or other transaction (unless the stockholders of
Company immediately prior to such merger, consolidation or other transaction
beneficially own, directly or indirectly, in substantially the same proportion
as they owned the voting stock of Company, all of the voting stock or other
ownership interests of the entity or entities, if any, that succeed to the
business of Company); or


 


(e)                                  Company
combines with another company and is the surviving corporation but, immediately
after the combination, the stockholders of Company immediately 


 


14

















 


prior to the combination hold, directly or
indirectly, 50% or less of the voting stock of the combined company (there
being excluded from the number of shares held by such stockholders, but not
from the voting stock of the combined company, any shares received by
affiliates of such, other company in exchange for stock of such other company).


 


For purposes of the Change of Control
definition, “Company” will include any entity that succeeds to all or
substantially all, of the business of Company and “voting stock” will mean
securities of any class or classes having general voting power under ordinary
circumstances, in the absence of contingencies, to elect the directors of a
corporation.


 


5.6                               “COBRA” means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.


 


5.7                               “Code” means the Internal Revenue Code of 1986, as amended.


 


5.8                               “Disability” means, in
Company’s sole discretion, Executive becomes mentally or physically impaired or
disabled such that he or she is unable to perform his or her duties and
responsibilities hereunder for a period of at least one hundred twenty (120)
days in the aggregate during any one hundred fifty (150) consecutive day period.


 


5.9                               “Equity Plan” means any equity plan, agreement or arrangement
maintained or sponsored by Company in which Executive is a participant.


 


5.10                        “401(k) Plan” means the Zale Corporation Savings and
Investment Plan or any other qualified retirement plan with a cash or deferred
arrangement that is maintained or sponsored by Company or any Affiliate in
which Executive is a participant.


 


5.11                        “Protection Period” means the period beginning on the date
that is six months prior to the occurrence of a Change of Control and ending
twenty-four (24) months following the occurrence of a Change of Control.


 


5.12                        “Qualifying Termination”


 


(a)                                  In the case of
any Termination of Employment other than during a Protection Period, “Qualifying
Termination” shall mean:


 


(i)                                    the Termination
of Employment of Executive by Company for any reason other than Cause,
Disability, or death; or


 


(ii)                                 the Termination
of Employment of Executive by Executive for any of the following reasons:


 


(A)                             a material
reduction by Company in Executive’s base salary or bonus eligibility unless
similar reductions apply to senior executives of Company and its subsidiaries
generally;


 


(B)                               relocation of
Company’s principal executive offices outside the Dallas/Fort Worth, Texas
Metroplex; or


 


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(C)                               the assignment
to Executive by Company of duties materially inconsistent with, or the material
reduction of the powers and functions associated with, Executive’s positions,
duties, responsibilities and status with Company or a material adverse change
in Executive’s titles or offices, unless such action is in lieu of termination
by Company of Executive’s employment due to Disability.


 


If Executive believes that an event specified in this Section 5.12(a)(ii) has
occurred, Executive must notify Company of that belief within ninety (90) days
following the occurrence of such event. 
Company will have thirty (30) days following receipt of such notice
(such period, the “Designated Period”) in which to either rectify such event,
determine that such an event exists, or determine that such an event does not
exist.  If Company does not take any of
the foregoing actions within the Designated Period, Executive may terminate his
or her employment with Company during the fourteen-day period following the
expiration of the Designated Period.  If,
during the Designated Period, Company determines that such an event exists
Company shall either (A) undertake to cure such event during the
Designated Period and provide Executive with written notice during the
Designated Period of Company’s determination that such event has been cured, or
(B) provide written notice to Executive during the Designated Period that
it does not wish to cure such event, in which case, Executive may terminate his
or her employment during the fourteen-day period following receipt of the
notice specified in this clause (B).  If,
during the Designated Period, Company determines that (1) such event does
not exist or (2) Company has cured such event pursuant to clause (A) of
the preceding sentence, then (x) Executive will not be entitled to rely on
or assert such event as a basis for a Qualifying Termination, and (y) if
Executive disagrees with Company’s determination, Executive may file a claim
pursuant to Article III within thirty (30) days after Executive’s receipt
of written notice of Company’s determination.


 


(b)                                In the case of
any Termination of Employment during a Protection Period, “Qualifying
Termination” shall mean:


 


(i)                                    the Termination
of Employment of Executive by Company for any reason other than Cause,
Disability, or death; or


 


(ii)                                 the Termination
of Employment of Executive by Executive for any of the following reasons:


 


(A)                             the assignment
to Executive by Company of duties inconsistent with, or the reduction, other
than due solely to the fact that Company no longer is a publicly traded company,
of the powers and functions associated with Executive’s position, duties,
responsibilities and status with 


 


16

















 


the Company immediately
prior to a Change of Control, or a material adverse change in Executive’s
titles or offices as in effect immediately prior to a Change of Control, or any
removal of Executive from or any failure to re-elect Executive to any of such
positions, except, in each of the foregoing cases, in connection with
Termination of Employment by Company due to Cause, Disability, or death;


 


(B)                               a reduction by
Company in Executive’s base salary or bonus eligibility as in effect on the
date of a Change of Control;


 


(C)                               relocation of
Company’s principal executive offices outside the Dallas/Fort Worth, Texas
Metroplex;


 


(D)                              Company’s
requirement that Executive be based anywhere other than at Company’s principal
executive offices in the Dallas/Fort Worth, Texas Metroplex area, or if
Executive agrees to a relocation outside the area, Company’s failure to
reimburse Executive for moving and all other expenses incurred with such move;


 


(E)                                Company’s
failure to continue in effect any Company-sponsored plan that is in effect on
the date of a Change of Control (or replacement plans therefore that in the
aggregate provide substantially the same or more favorable benefits) that is
either a 401(k) Plan or provides incentive or bonus compensation or
reimbursement for reasonable expenses incurred by Executive in connection with
the performance of duties with Company;


 


(F)                                any material
breach by Company of any provision of this Agreement; or


 


(G)                               any failure by
Company to obtain the assumption of this Agreement by any successor or assign
of Company.


 


If Executive believes that
an event specified in this Section 5.12(b)(ii) has occurred,
Executive must notify Company of that belief within ninety (90) days following
the occurrence of such event.  Company
will have thirty (30) days following receipt of such notice (such period, the “Designated
Period”) in which to either rectify such event, determine that such an event
exists, or determine that such an event does not exist.  If Company does not take any of the foregoing
actions within the Designated Period, Executive may terminate his or her
employment with Company during the fourteen-day period following the expiration
of the Designated Period.  If, during the
Designated Period, Company determines that such an event exists Company shall
either (A) undertake to cure such event during the Designated 


 


17

















 


Period and provide Executive
with written notice during the Designated Period of Company’s determination
that such event has been cured, or (B) provide written notice to Executive
during the Designated Period that it does not wish to cure such event, in which
case, Executive may terminate his or her employment during the fourteen-day
period following receipt of the notice specified in this clause (B).  If, during the Designated Period, Company
determines that (1) such event does not exist or (2) Company has
cured such event pursuant to clause (A) of the preceding sentence, then (x) Executive
will not be entitled to rely on or assert such event as a basis for a
Qualifying Termination, and (y) if Executive disagrees with Company’s
determination, Executive may file a claim pursuant to Article III within
thirty (30) days after Executive’s receipt of written notice of Company’s
determination.


 


(c)                                   Notwithstanding
anything to the contrary contained herein, for purposes of Section 1.2, a
Qualifying Termination shall occur only to the extent that Executive incurs a “separation
from service” with Company within the meaning of Treasury Regulation Section 1.409A-1(h).


 


(d)                                  In the event
that Executive is employed by a subsidiary of Company, including Zale Delaware, Inc.,
and not Company, for purposes of the term “Qualifying Termination,” “Company”
will include such subsidiary.


 


5.13                        “Severance Pay” means cash severance payments in an amount
equal to the product of (a) the sum of Executive’s Base Compensation as of
Termination of Employment and Bonus (as specified in Section 5.3), and (b) the
applicable Severance Period specified in Section 5.14.


 


5.14                        “Severance Period” means the following period, based on
whether Executive’s Qualifying Termination is during a Protection Period:


 


	
  QUALIFYING TERMINATION

  OTHER THAN DURING A

  PROTECTION PERIOD -

  SECTION 1.1

  	
   

  	
  QUALIFYING TERMINATION

  DURING A PROTECTION

  PERIOD - SECTION 1.2

  	
   

  
	
  1.5 years

  	
   

  	
  3 years

  	
   

  



 


5.15                        “Termination of Employment” means the date on which Executive
ceases to perform duties for Company or its Affiliate(s).


 


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IN WITNESS WHEREOF, the parties
have executed this Agreement as of the
         day of
                          ,
200      .


 


	
  ZALE CORPORATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTIVE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
						



 


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