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EXHIBIT 10.4


APPENDIX B



2003 STOCK INCENTIVE PLAN



1. PREAMBLE



     This Zale Corporation 2003 Stock Incentive Plan, as it may be amended from
time to time (the “Plan”), is intended to promote the interests of Zale
Corporation, a Delaware corporation (together with its Subsidiaries, the
“Company”), and its stockholders by providing officers and other employees
(including directors who are employees) of the Company with appropriate
incentives and rewards to encourage them to enter into and continue in the
employ of the Company and to acquire a proprietary interest in the long-term
success of the Company.


2. DEFINITIONS



     As used in the Plan, the following definitions apply to the terms
indicated below:


     (a)  “Board of Directors” shall mean the Board of Directors of the Company.


     (b)  “Cause,” when used in connection with the termination of a
Participant’s (as defined herein) employment by the Company, shall mean (i) the
willful and continued failure by the Participant substantially to perform his
or her duties and obligations to the Company (other than any such failure
resulting from his or her incapacity due to physical or mental illness) or (ii)
the willful engaging by the Participant in misconduct which is materially
injurious to the Company. For purposes of this Section 2(b), no act, or
failure to act, on a Participant’s part shall be considered “willful” unless
done, or omitted to be done, by the Participant in bad faith and without
reasonable belief that his or her action or omission was in the best interests
of the Company. The Company shall determine whether a termination of
employment is for Cause and shall notify the Committee of such a determination.


     (c)  “Change in Control” shall mean any of the following occurrences:


          (1) any “person,” as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company’s then outstanding securities;



          (2) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors, and any new
director (other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause (1), (3)
or (4) of this definition) whose election by the Board of Directors or
nomination for election by the Company’s stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at
least a majority thereof;



          (3) the stockholders of the Company approve a merger or consolidation of the
Company with any other entity, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50%
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
(ii) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no “person” (as



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hereinabove defined) acquires more than 50% of the combined voting power of the
Company’s then outstanding securities; or


          (4) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company’s assets.



     (d)  “Code” shall mean the Internal Revenue Code of 1986, as amended.


     (e)  “Committee” shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan; provided, that the Committee shall at all
times consist of two or more persons, each of whom shall be a member of the
Board of Directors. To the extent required for transactions under the Plan to
qualify for the exemptions available under Rule 16b-3 (as defined herein),
members of the Committee (or any subcommittee thereof) shall be “non-employee
directors” within the meaning of Rule 16b-3. To the extent required for
compensation realized from Incentive Awards (as defined herein) under the Plan
to be deductible by the Company pursuant to Section 162(m) of the Code, members
of the Committee (or any subcommittee thereof) shall be “outside directors”
within the meaning of such section.


     (f)  “Company Stock” shall mean the common stock, par value $.01 per share,
of the Company.


     (g)  “Disability” shall mean: (1) any physical or mental condition that
would qualify a Participant for a disability benefit under the long-term
disability plan maintained by the Company and applicable to him or her or (2)
when used in connection with the exercise of an Incentive Stock Option (as
defined herein) following termination of employment, disability within the
meaning of Section 422(e)(3) of the Code.


     (h)  “Effective Date” shall mean November 6, 2003.


     (i)  “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended.


     (j)  The “Fair Market Value” of a share of Company Stock with respect to
any day shall be the closing price of Company Stock on the immediately
preceding business day as reported on the New York Stock Exchange or on such
other securities exchange or reporting system as may be designated by the
Committee. In the event that the price of a share of Company Stock shall not
be so reported, the Fair Market Value of a share of Company Stock shall be
determined by the Committee in its absolute discretion.


     (k)  “Incentive Award” shall mean an Option, Tandem SAR, Stand-Alone SAR,
share of Restricted Stock, share of Phantom Stock or Stock Bonus (each as
defined herein) granted pursuant to the terms of the Plan.


     (l)  “Incentive Stock Option” shall mean an Option that is an “incentive
stock option” within the meaning of Section 422 of the Code.


     (m)  “Issue Date” shall mean the date established by the Committee on which
Certificates representing shares of Restricted Stock shall be issued by the
Company pursuant to the terms of Section 10(e).


     (n)  “Non-Qualified Stock Option” shall mean an Option that is not an
Incentive Stock Option.


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     (o)  “Option” shall mean an option to purchase shares of Company Stock
granted pursuant to Section 7.


     (p)  “Participant” shall mean an employee of the Company to whom an
Incentive Award is granted pursuant to the Plan and, upon his or her death, his
or her successors, heirs, executors and administrators, as the case may be.


     (q)  A share of “Phantom Stock” shall mean the right, granted pursuant to
Section 11, to receive in cash the Fair Market Value of a share of Company
Stock.


     (r)  “Plan Agreement” shall mean the written agreement between the Company
and a Participant or other document approved by the Committee evidencing an
Incentive Award.


     (s)  A share of “Restricted Stock” shall mean a share of Company Stock
which is granted pursuant to the terms of Section 10 hereof and which is
subject to the restrictions set forth in Section 10(c).


     (t)  “Rule 16b-3” shall mean the rule thus designated as promulgated under
the Exchange Act.


     (u)  “Stand-Alone SAR” shall mean a stock appreciation right granted
pursuant to Section 9 which is not related to any Option.


     (v)  “Stock Bonus” shall mean a bonus payable in shares of Company Stock
granted pursuant to Section 12.


     (w)  “Subsidiary” shall mean any corporation or other entity in which, at
the time of reference, the Company owns, directly or indirectly, stock or
similar interests comprising more than 50 percent of the combined voting power
of all outstanding securities of such entity.


     (x)  “Tandem SAR” shall mean a stock appreciation right granted pursuant to
Section 8 which is related to an Option.


     (y)  “Vesting Date” shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.


3. STOCK SUBJECT TO THE PLAN



     (a)  Shares Available for Awards


     The total number of shares of Company Stock with respect to which
Incentive Awards may be granted shall not exceed 3,000,000 shares. Such shares
may be authorized but unissued Company Stock or authorized and issued Company
Stock held in the Company’s treasury or acquired by the Company for the
purposes of the Plan. The Committee may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend setting forth
such restrictions on transferability as may apply to such shares pursuant to
the Plan.


     The grant of a Tandem SAR shall not reduce the number of shares of Company
Stock with respect to which Incentive Awards may be granted pursuant to the
Plan.


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     (b)  Individual Limitation


     The total number of shares of Company Stock subject to Options and to
Stand-Alone SARS, awarded to any one employee during any fiscal year of the
Company, shall not exceed 600,000 shares. Determinations under the preceding
sentence shall be made in a manner that is consistent with Section 162(m) of
the Code and regulations promulgated thereunder. The provisions of this
Section 3(b) shall not apply in any circumstance with respect to which the
Committee determines that compliance with Section 162(m) of the Code is not
necessary.


     (c)  Adjustment for Change in Capitalization


     If there is any change in the outstanding shares of Company Stock by
reason of a stock dividend or distribution, stock split-up, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spinoff or other corporate reorganization in which the Company is the surviving
corporation, the number of shares available for issuance both in the aggregate
and with respect to each outstanding Incentive Award, the price per share under
each outstanding Incentive Award, and the limitation set forth in Section 3(b),
shall be proportionately adjusted by the Committee, whose determination shall
be final and binding. After any adjustment made pursuant to this Section 3(c),
the number of shares subject to each outstanding Incentive Award shall be
rounded to the nearest whole number.


     (d)  Re-use of Shares


     The following shares of Company Stock shall again become available for
Incentive Awards: any shares subject to an Incentive Award that remain unissued
upon the cancellation or termination of such Award for any reason whatsoever;
any shares of Restricted Stock forfeited, provided that any dividends paid on
such shares are also forfeited; and any shares in respect of which a stock
appreciation right is settled for cash.


     (e)  Total Grants for Awards Other than Options


     The total number of shares of Company Stock with respect to which Tandem
SARs, Stand Alone SARs, shares of Restricted Stock, shares of Phantom Stock and
Stock Bonuses may collectively be granted shall not exceed 30% of the total
number of shares of Company Stock with respect to which all Incentive Awards
have been or may be granted under the Plan.


     (f)  No Repricing


     Absent stockholder approval, neither the Committee nor the Board of
Directors shall have any authority, with or without the consent of the affected
holders of Incentive Awards, to “reprice” an Incentive Award after the date of
its initial grant with a lower exercise price in substitution for the original
exercise price. This paragraph may not be amended, altered or repealed by the
Board of Directors or the Committee without approval of the stockholders of the
Company.


4. ADMINISTRATION OF THE PLAN



     The Plan shall be administered by the Committee. The Committee shall from
time to time designate the employees of the Company who shall be granted
Incentive Awards and the amount, type and other features of each Incentive
Award.


     The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary or appropriate. The


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Committee shall determine whether an authorized leave of absence shall
constitute termination of employment. Decisions of the Committee shall be
final and binding on all parties. Notwithstanding anything to the contrary
contained herein, the Board of Directors may, in its sole discretion, at any
time and from time to time, resolve to administer the Plan, in which case the
term “Committee” as used herein shall be deemed to mean the Board of Directors.


     The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Option or Stand-Alone SAR granted
under the Plan becomes exercisable, (ii) waive or amend the operation of Plan
provisions respecting exercise after termination of employment or otherwise
adjust any of the terms of such Option or Stand-Alone SAR and (iii) accelerate
the Vesting Date or Issue Date, or waive any condition imposed hereunder, with
respect to any share of Restricted Stock or Phantom Stock or otherwise adjust
any of the terms applicable to such share.


     No member of the Committee shall be liable for any action, omission or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of
a claim with the approval of the Committee) arising out of any action, omission
or determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the best
interests of the Company.


5. ELIGIBILITY



     The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be such employees of the Company (including officers of the
Company, whether or not they are directors of the Company) as the Committee
shall designate from time to time. Directors who are not employees or officers
of the Company shall not be eligible to receive Incentive Awards under the
Plan.


6. AWARDS UNDER THE PLAN; PLAN AGREEMENTS



     The Committee may grant Options, Tandem SARS, Stand-Alone SARS, shares of
Restricted Stock, shares of Phantom Stock and Stock Bonuses, in such amounts
and with such terms and conditions as the Committee shall determine, subject to
the provisions of the Plan.


     Each Incentive Award granted under the Plan (except an unconditional Stock
Bonus) shall be evidenced by a Plan Agreement which shall contain such
provisions as the Committee may in its sole discretion deem necessary or
desirable. By accepting an Incentive Award, a Participant thereby agrees that
the Incentive Award shall be subject to all of the terms and provisions of the
Plan and the applicable Plan Agreement.


7. OPTIONS



     (a)  Identification of Options


     Each Option shall be clearly identified in the applicable Plan Agreement
as either an Incentive Stock Option or a Non-Qualified Stock Option.


     (b)  Exercise Price


     Each Plan Agreement with respect to an Option shall set forth the amount
(the “exercise price”) payable by the holder to the Company upon exercise of
the Option. The exercise price per share shall be


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determined by the Committee but shall in no event be less than the Fair Market
Value of a share of Company Stock on the date the Option is granted.


     (c)  Term and Exercise of Options


          (1) Unless the applicable Plan Agreement provides otherwise, an Option shall
become cumulatively exercisable as to 25% of the shares covered thereby on each
of the first, second, third and fourth anniversaries of the date of grant. The
Committee shall determine the expiration date of each Option; provided,
however, that no Incentive Stock Option shall be exercisable more than ten
years after the date of grant. Unless the applicable Plan Agreement provides
otherwise, no Option shall be exercisable prior to the first anniversary of the
date of grant.



          (2) An Option may be exercised for all or any portion of the shares as to which
it is exercisable; provided, that no partial exercise of an Option shall be for
an aggregate exercise price of less than $1,000. The partial exercise of an
Option shall not cause the expiration, termination or cancellation of the
remaining portion thereof.



          (3) An Option shall be exercised by delivering notice to the Company’s
principal office, to the attention of its Secretary (or the Secretary’s
designee), no less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the applicable Plan
Agreement, shall specify the number of shares of Company Stock with respect to
which the Option is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant or other person then having the
right to exercise the Option. Such notice may be withdrawn at any time prior
to the close of business on the business day immediately preceding the
effective date of the proposed exercise. Payment for shares of Company Stock
purchased upon the exercise of an Option shall be made on the effective date of
such exercise by one or a combination of the following means: (i) in cash, by
certified check, bank cashier’s check or wire transfer; (ii) subject to the
approval of the Committee, in shares of Company Stock owned by the Participant
for at least six months prior to the date of exercise and valued at their Fair
Market Value on the effective date of such exercise; or (iii) subject to the
approval of the Committee, by such other provision as the Committee may from
time to time authorize. Any payment in shares of Company Stock shall be
effected by the delivery of such shares to the Secretary (or the Secretary’s
designee) of the Company, duly endorsed in blank or accompanied by stock powers
duly executed in blank, together with any other documents and evidences as the
Secretary (or the Secretary’s designee) of the Company shall require.



          (4) Certificates for shares of Company Stock purchased upon the exercise of an
Option shall be issued in the name of the Participant or other person entitled
to receive such shares, and delivered to the Participant or such other person
as soon as practicable following the effective date on which the Option is
exercised.



     (d)  Limitations on Incentive Stock Options


          (1) To the extent that the aggregate Fair Market Value of shares of Company
Stock with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year under the Plan and any
other stock option plan of the Company (or any “subsidiary corporation” of the
Company within the meaning of Section 424 of the Code) shall exceed $100,000,
or such higher value as may be permitted under Section 422 of the Code, such
Options shall be treated as Non-Qualified Stock Options. Such Fair Market
Value shall be determined as of the date on which each such Incentive Stock
Option is granted.



          (2) No Incentive Stock Option may be granted to an individual if, at the time
of the proposed grant, such individual owns stock possessing more than 10% of
the total combined voting

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power of all classes of stock of the Company (or any “subsidiary corporation”
of the Company within the meaning of Section 424 of the Code), unless (i) the
exercise price of such Incentive Stock Option is at least 110% of the Fair
Market Value of a share of Company Stock at the time such Incentive Stock
Option is granted and (ii) such Incentive Stock Option is not exercisable after
the expiration of five years from the date such Incentive Stock Option is
granted.


     (e)  Effect of Termination of Employment


          (1) Unless the applicable Plan Agreement provides or the Committee shall
determine otherwise, in the event that the employment of a Participant with the
Company shall terminate for any reason other than Cause, Disability or death:
(i) Options granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable until the
date that is three months after such termination, on which date they shall
expire; and (ii) Options granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall expire at the close
of business on the date of such termination. The three-month period described
in this Section 7(e)(1) shall be extended to one year in the event of the
Participant’s death during such three-month period. Notwithstanding the
foregoing, no Option shall be exercisable after the expiration of its term.



          (2) Unless the applicable Plan Agreement provides or the Committee shall
determine otherwise, in the event that the employment of a Participant with the
Company shall terminate on account of the Disability or death of the
Participant: (i) Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain exercisable
until the first anniversary of such termination, on which date they shall
expire; and (ii) Options granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall expire at the close
of business on the date of such termination. Notwithstanding the foregoing, no
Option shall be exercisable after the expiration of its term.



          (3) In the event of the termination of a Participant’s employment for Cause,
all outstanding Options granted to such Participant shall expire at the
commencement of business on the date of such termination.



     (f)  Acceleration of Exercise Date Upon Change in Control


     Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately
exercisable and shall remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan. In addition, in the event of a
potential Change in Control, the Committee may in its discretion, cancel any
outstanding Options and pay to the holders thereof, in cash or stock, or any
combination thereof, the value of such Options based upon the price per share
of Common Stock to be received by other shareholders of the Company in the
Change in Control less the exercise price of each Option.


8. TANDEM SARS



     The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARS relating to a number of shares of Company Stock less
than or equal to the number of shares of Company Stock subject to the related
Option. A Tandem SAR may be granted at the same time as, or, in the case of a
Non-Qualified Stock Option, subsequent to the time that its related Option is
granted.


     (a)  Benefit Upon Exercise


     The exercise of a Tandem SAR with respect to any number of shares of
Company Stock shall entitle the Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market


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Value of a share of Company Stock on the exercise date over (ii) the option
exercise price of the related Option. Such payment shall be made as soon as
practicable after the effective date of such exercise.


     (b)  Term and Exercise of Tandem SAR


          (1) A Tandem SAR shall be exercisable only if and to the extent that its
related Option is exercisable.



          (2) The exercise of a Tandem SAR with respect to a number of shares of Company
Stock shall cause the immediate and automatic cancellation of its related
Option with respect to an equal number of shares. The exercise of an Option,
or the cancellation, termination or expiration of an Option (other than
pursuant to this Section 8(b)(2)), with respect to a number of shares of
Company Stock shall cause the automatic and immediate cancellation of any
related Tandem SARS to the extent that the number of shares of Company Stock
remaining subject to such Option is less than the number of shares subject to
such Tandem SARS.



     Tandem SARS shall be cancelled in the order in which they became
exercisable.


          (3) A Tandem SAR may be exercised for all or any portion of the shares as to
which it is exercisable; provided, that no partial exercise of a Tandem SAR
shall be for an aggregate exercise price of the related Option of less than
$1,000. The partial exercise of a Tandem SAR shall not cause the expiration,
termination or cancellation of the remaining portion thereof.



          (4) No Tandem SAR shall be assignable or transferable otherwise than together
with its related Option.



          (5) A Tandem SAR shall be exercised by delivering notice to the Company’s
principal office, to the attention of its Secretary (or the Secretary’s
designee), no less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the applicable Plan
Agreement, shall specify the number of shares of Company Stock with respect to
which the Tandem SAR is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant or other person then having the
right to exercise the Option to which the Tandem SAR is related. Such notice
may be withdrawn at any time prior to the close of business on the business day
immediately preceding the effective date of the proposed exercise.



9. STAND-ALONE SARS



     (a)  Exercise Price


     The exercise price per share of a Stand-Alone SAR shall be determined by
the Committee at the time of grant, but shall in no event be less than the Fair
Market Value of a share of Company Stock on the date of grant.


     (b)  Benefit Upon Exercise


     The exercise of a Stand-Alone SAR with respect to any number of shares of
Company Stock shall entitle the Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a share of Company
Stock on the exercise date over (ii) the exercise price of the Stand-Alone SAR.
Such payments shall be made as soon as practicable.


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     (c)  Term and Exercise of Stand-Alone SARS


          (1) Unless the applicable Plan Agreement provides otherwise, a Stand-Alone SAR
shall become cumulatively exercisable as to 25 percent of the shares covered
thereby on each of the first, second, third and fourth anniversaries of the
date of grant. The Committee shall determine the expiration date of each
Stand-Alone SAR. Unless the applicable Plan Agreement provides otherwise, no
Stand-Alone SAR shall be exercisable prior to the first anniversary of the date
of grant.



          (2) A Stand-Alone SAR may be exercised for all or any portion of the shares as
to which it is exercisable; provided, that no partial exercise of a Stand-Alone
SAR shall be for an aggregate exercise price of less than $1,000. The partial
exercise of a Stand-Alone SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof.



          (3) A Stand-Alone SAR shall be exercised by delivering notice to the Company’s
principal office, to the attention of its Secretary (or the Secretary’s
designee), no less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the applicable Plan
Agreement, shall specify the number of shares of Company Stock with respect to
which the Stand-Alone SAR is being exercised, and the effective date of the
proposed exercise, and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the business
day immediately preceding the effective date of the proposed exercise.



     (d)  Effect of Termination of Employment


     The provisions set forth in Section 7(e) with respect to the exercise of
Options following termination of employment shall apply as well to such
exercise of Stand-Alone SARS.


     (e)  Acceleration of Exercise Date Upon Change in Control


     Upon the occurrence of a Change in Control, any Stand-Alone SAR granted
under the Plan and outstanding at such time shall become fully and immediately
exercisable and shall remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan.


10. RESTRICTED STOCK



     (a)  Issue Date and Vesting Date


     At the time of the grant of shares of Restricted Stock, the Committee
shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting
Dates with respect to such shares. The Committee may divide such shares into
classes and assign a different Issue Date and/or Vesting Date for each class.
If the grantee is employed by the Company on an Issue Date (which may be the
date of grant), the specified number of shares of Restricted Stock shall be
issued in accordance with the provisions of Section 10(e). Provided that all
conditions to the vesting of a share of Restricted Stock imposed pursuant to
Section 10(b) are satisfied, and except as provided in Section 10(g), upon the
occurrence of the Vesting Date with respect to a share of Restricted Stock,
such share shall vest and the restrictions of Section 10(c) shall cease to
apply to such share.


     (b)  Conditions to Vesting


     At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions to the vesting of such shares as it, in
its absolute discretion, deems appropriate. By way of example and not by way
of limitation, the Committee may require, as a condition to the vesting of any
class or classes of shares of Restricted Stock, that the Participant or the
Company achieves such performance goals as the Committee may specify.


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     (c)  Restrictions on Transfer Prior to Vesting


     Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant’s rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall be permitted. Immediately
upon any attempt to transfer such rights, such share, and all of the rights
related thereto, shall be forfeited by the Participant.


     (d)  Dividends on Restricted Stock


     The Committee in its discretion may require that any dividends paid on
shares of Restricted Stock shall be held in escrow until all restrictions on
such shares have lapsed.


     (e)  Issuance of Certificates


          (1) Reasonably promptly after the Issue Date with respect to shares of
Restricted Stock, the Company shall cause to be issued a stock certificate,
registered in the name of the Participant to whom such shares were granted,
evidencing such shares; provided, that the Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:




		
	 	     The transferability of this certificate and the shares
of stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture provisions and
restrictions against transfer) contained in the Zale
Corporation 2003 Stock Incentive Plan and related Plan
Agreement, and such rules, regulations and interpretations
as the Zale Corporation Compensation Committee may adopt.
Copies of the Plan, Plan Agreement and, if any, rules,
regulations and interpretations are on file in the office of
the Secretary of Zale Corporation, 901 West Walnut Hill
Lane, Irving, Texas 75038-1003.



     Such legend shall not be removed until such shares vest pursuant to the
terms hereof.


          (2) Each certificate issued pursuant to this Section 10(e), together with the
stock powers relating to the shares of Restricted Stock evidenced by such
certificate, shall be held by the Company unless the Committee determines
otherwise.



     (f)  Consequences of Vesting


     Upon the vesting of a share of Restricted Stock pursuant to the terms of
the Plan and the applicable Plan Agreement, the restrictions of Section 10(c)
shall cease to apply to such share. Reasonably promptly after a share of
Restricted Stock vests, the Company shall cause to be delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 10(e). Notwithstanding the
foregoing, such share still may be subject to restrictions on transfer as a
result of applicable securities laws.


     (g)  Effect of Termination of Employment


          (1) Unless the applicable Plan Agreement or the Committee provides otherwise,
during the 90 days following termination of a Participant’s employment for any
reason other than Cause, the Company shall have the right to require the return
of any shares to which restrictions on transferability apply, in exchange for
which the Company shall repay to the Participant (or the Participant’s estate)
any amount paid by the Participant for such shares. In the event that the
Company requires such a return of

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shares, it also shall have the right to require the return of all dividends
paid on such shares, whether by termination of any escrow arrangement under
which such dividends are held or otherwise.


          (2) In the event of the termination of a Participant’s employment for Cause,
all shares of Restricted Stock granted to such Participant which have not
vested as of the date of such termination shall immediately be returned to the
Company, together with any dividends paid on such shares, in return for which
the Company shall repay to the Participant any amount paid for such shares.



     (h)  Effect of Change in Control


     Upon the occurrence of a Change in Control, all outstanding shares of
Restricted Stock which have not theretofore vested shall immediately vest.


11. PHANTOM STOCK



     (a)  Vesting Date


     At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a different Vesting
Date for each class. Provided that all conditions to the vesting of a share of
Phantom Stock imposed pursuant to Section 11(c) are satisfied, and except as
provided in Section 11(d), upon the occurrence of the Vesting Date with respect
to a share of Phantom Stock, such share shall vest.


     (b)  Benefit Upon Vesting


     Upon the vesting of a share of Phantom Stock, the Participant shall be
entitled to receive in cash, within 30 days of the date on which such share
vests, an amount equal to the sum of (i) the Fair Market Value of a share of
Company Stock on the date on which such share of Phantom Stock vests and (ii)
the aggregate amount of cash dividends paid with respect to a share of Company
Stock during the period commencing on the date on which the share of Phantom
Stock was granted and terminating on the date on which such share vests.


     (c)  Conditions to Vesting


     At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions to the vesting of such shares as it, in
its absolute discretion, deems appropriate. By way of example and not by way
of limitation, the Committee may require, as a condition to the vesting of any
class or classes of shares of Phantom Stock, that the Participant or the
Company achieves such performance goals as the Committee may specify.


     (d)  Effect of Termination of Employment


          (1) Unless the applicable Plan Agreement or the Committee provides otherwise,
shares of Phantom Stock that have not vested, together with any dividends
credited on such shares, shall be forfeited upon the Participant’s termination
of employment for any reason other than Cause.



          (2) In the event of the termination of a Participant’s employment for Cause,
all shares of Phantom Stock granted to such Participant which have not vested
as of the date of such termination shall immediately be forfeited, together
with any dividends credited on such shares.



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     (e)  Effect of Change in Control


     Upon the occurrence of a Change in Control all outstanding shares of
Phantom Stock which have not theretofore vested shall immediately vest.


12. STOCK BONUSES



     In the event that the Committee grants a Stock Bonus, a certificate for
the shares of Company Stock comprising such Stock Bonus shall be issued in the
name of the Participant to whom such grant was made and delivered to such
Participant as soon as practicable after the date on which such Stock Bonus is
payable.


13. RIGHTS AS A STOCKHOLDER



     No person shall have any rights as a stockholder with respect to any
shares of Company Stock covered by or relating to any Incentive Award until the
date of issuance of a stock certificate with respect to such shares.


     Except as otherwise expressly provided in Section 3(c), no adjustment to
any Incentive Award shall be made for dividends or other rights for which the
record date occurs prior to the date such stock certificate is issued.


14. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD



     Nothing contained in the Plan or any Plan Agreement shall confer upon any
Participant any right with respect to the continuation of employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant.


     No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee’s granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant any other Incentive Award
to such Participant or other person at any time nor preclude the Committee from
making subsequent grants to such Participant or any other person.


15. SECURITIES MATTERS



     (a)  The Company shall be under no obligation to affect the registration
pursuant to the Securities Act of 1933 of any interests in the Plan or any
shares of Company Stock to be issued hereunder or to effect similar compliance
under any state laws. Notwithstanding anything herein to the contrary, the
Company shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Company Stock pursuant to the Plan unless and
until the Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority and the requirements of the New York Stock Exchange and
any other securities exchange on which shares of Company Stock are traded.
Certificates evidencing shares of Company Stock issued pursuant to the terms
hereof, may bear such legends, as the Committee or the Company, in its sole
discretion, deems necessary or desirable to insure compliance with applicable
securities laws.


     (b)  The transfer of any shares of Company Stock hereunder shall be
effective only at such time as counsel to the Company shall have determined
that the issuance and delivery of such shares is in compliance with all
applicable laws, regulations of governmental authority and the requirements of
the New York Stock Exchange and any other securities exchange on which shares
of Company Stock are traded. The Committee may, in its sole discretion, defer
the effectiveness of any transfer of shares of


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Company stock hereunder in order to allow the issuance of such shares to be
made pursuant to registration or an exemption from registration or other
methods for compliance available under federal or state securities laws. The
Company shall inform the Participant in writing of the Committee’s decision to
defer the effectiveness of a transfer. During the period of such a deferral in
connection with the exercise of an Option, the Participant may, by written
notice, withdraw such exercise and obtain the refund of any amount paid with
respect thereto.


16. WITHHOLDING TAXES



     Whenever cash is to be paid pursuant to an Incentive Award, the Company
shall have the right to deduct therefrom an amount sufficient to satisfy any
federal, state and local withholding tax requirements related thereto.


     Whenever shares of Company Stock are to be delivered pursuant to an
Incentive Award, the Company shall have the right to require the Participant to
remit to the Company in cash an amount sufficient to satisfy any federal, state
and local withholding tax requirements related thereto. With the approval of
the Committee, which it shall have sole discretion to grant, a Participant may
satisfy the foregoing requirement by electing to have the Company withhold from
delivery shares of Company Stock having a value equal to the amount of tax to
be withheld. Such shares shall be valued at their Fair Market Value on the
date as of which the amount of tax to be withheld is determined (the “Tax
Date”). Fractional share amounts shall be settled in cash. Such a withholding
election may be made with respect to all or any portion of the shares to be
delivered pursuant to an Incentive Award. To the extent required for such a
withholding of stock to qualify for the exemption available under Rule 16b-3,
such an election by a grantee whose transactions in Company Stock are subject
to Section 16(b) of the Exchange Act shall be: (i) subject to the approval of
the Committee in its sole discretion; (ii) irrevocable; (iii) made no sooner
than six months after the grant of the award with respect to which the election
is made; and (iv) made at least six months prior to the Tax Date unless such
withholding election is in connection with exercise of an Option and both the
election and the exercise occur prior to the Tax Date in a “window period” of
ten business days beginning on the third day following release of the Company’s
quarterly or annual summary statement of sales and earnings.


17. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE



     If any Participant shall, in connection with the acquisition of shares of
Company Stock under the Plan, make the election permitted under Section 83(b)
of the Code (i.e., an election to include in gross income in the year of
transfer the amounts specified in Section 83(b)), such Participant shall notify
the Company of such election within ten days of filing notice of the election
with the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code Section
83(b).


18.     NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER SECTION 421(b) OF THE
CODE


     Each Plan Agreement with respect to an Incentive Stock Option shall
require the Participant to notify the Company of any disposition of shares of
Company Stock issued pursuant to the exercise of such Option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions) within ten days of such disposition.


19. AMENDMENT OR TERMINATION OF THE PLAN



     The Board of Directors may, at any time, suspend or terminate the Plan or
revise or amend it in any respect whatsoever; provided, however, that
stockholder approval shall be required if and to the


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extent required by Rule 16b-3 or by any comparable or successor exemption under
which the Board of Directors believes it is appropriate for the Plan to
qualify, or if and to the extent the Board of Directors determines that such
approval is appropriate for purposes of satisfying Section 162(m) or Section
422 of the Code. Nothing herein shall restrict the Committee’s ability to
exercise its discretionary authority pursuant to Section 4, which discretion
may be exercised without amendment to the Plan. No action hereunder may,
without the consent of a Participant, reduce the Participant’s rights under any
outstanding Incentive Award.


20. NO OBLIGATION TO EXERCISE



     The grant to a Participant of an Option, Tandem SAR or Stand-Alone SAR
shall impose no obligation upon such Participant to exercise such Option,
Tandem SAR or Stand-Alone SAR.


21. TRANSFERS UPON DEATH; NONASSIGNABILITY



     Upon the death of a Participant outstanding Incentive Awards granted to
such Participant may be exercised only by the executor or administrator of the
Participant’s estate or by a person who shall have acquired the right to such
exercise by will or by the laws of descent and distribution. No transfer of an
Incentive Award by will or the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been furnished with
(a) written notice thereof and with a copy of the will and/or such evidence as
the Committee may deem necessary to establish the validity of the transfer and
(b) an agreement by the transferee to comply with all the terms and conditions
of the Incentive Award that are or would have been applicable to the
Participant and to be bound by the acknowledgments made by the Participant in
connection with the grant of the Incentive Award.


     During a Participant’s lifetime, the Committee may permit the transfer,
assignment or other encumbrance of an outstanding Option or outstanding shares
of Restricted Stock unless (i) such Option is an Incentive Stock Option and the
Committee and the Participant intend that it shall retain such status or (ii)
the award is meant to qualify for the exemptions available under Rule 16b-3 and
the Committee and the Participant intend that it shall continue to so qualify.


22. EXPENSES AND RECEIPTS



     The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.



23. FAILURE TO COMPLY



     In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant (or beneficiary) to comply with any of the terms and
conditions of the Plan or the applicable Plan Agreement, unless such failure is
remedied by such Participant (or beneficiary) within ten days after notice of
such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its sole discretion, may determine.


24. EFFECTIVE DATE AND TERM OF PLAN



     The Plan shall be effective as of the Effective Date. Unless earlier
terminated by the Board of Directors, the right to grant Incentive Awards under
the Plan will terminate on the tenth anniversary of the Effective Date.
Incentive Awards outstanding at Plan termination will remain in effect
according to their terms and the provisions of the Plan.


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25. APPLICABLE LAW



     Except to the extent preempted by any applicable federal law, the Plan
will be construed and administered in accordance with the laws of the State of
Delaware, without reference to the principles of conflicts of laws thereunder.



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