**Exhibit
      2.2(a)**




**CONFORMED
      COPY**









ASSET
      PURCHASE AGREEMENT




by
      and
      among




ZALE
      CORPORATION,




ZALE
      DELAWARE, INC.,




TXDC,
      L.P.,




FINLAY
      FINE JEWELRY CORPORATION




and,
      for
      limited purposes,




FINLAY
      ENTERPRISES, INC.




September
      27, 200 7












**TABLE
      OF CONTENTS**




PageARTICLE
                I
            Purchase
                and Sale of Acquired Assets; Assumption of Assumed
                Liabilities
            1SECTION
                1.1
            Purchase
                and Sale
            1SECTION
                1.2
            Acquired
                Assets and Excluded Assets
            1SECTION
                1.3
            Assumption
                of Liabilities
            6SECTION
                1.4
            Purchase
                Price
            8ARTICLE
                II
            The
                Closing
            9SECTION
                2.1
            Closing
                Date
            9SECTION
                2.2
            Transactions
                to be Effected at the Closing
            9SECTION
                2.3
            Inventory
                True-Up
            10ARTICLE
                III
            Representations
                and Warranties of Parent and Sellers
            11SECTION
                3.1
            Organization,
                Standing and Power
            11SECTION
                3.2
            Authority
            11SECTION
                3.3
            No
                Conflicts.
            12SECTION
                3.4
            Compliance
                with Applicable laws
            12SECTION
                3.5
            Financial
                Statements, Books and Records
            13SECTION
                3.6
            Absence
                of Certain Changes
            13SECTION
                3.7
            Litigation;
                Decrees
            14SECTION
                3.8
            Title
                to Acquired Assets
            14SECTION
                3.9
            Real
                Property
            15SECTION
                3.10
            Personal
                Property
            15SECTION
                3.11
            Advertising
            15SECTION
                3.12
            Intellectual
                Property
            15SECTION
                3.13
            Insurance
            16SECTION
                3.14
            Contracts
            16SECTION
                3.15
            Sufficiency
                of Acquired Assets
            18SECTION
                3.16
            Environmental
                Matters
            18SECTION
                3.17
            Taxes
            20SECTION
                3.18
            Labor
                Matters
            20SECTION
                3.19
            Brokers;
                Transaction Bonuses
            20SECTION
                3.20
            Employee
                Benefits
            21SECTION
                3.21
            Certain
                Payments
            21ARTICLE
                IV
            Representations
                and Warranties of Purchaser
            21SECTION
                4.1
            Organization,
                Standing and Power
            21SECTION
                4.2
            Authority
            21SECTION
                4.3
            No
                Conflicts
            22SECTION
                4.4
            Financial
                Ability
            22SECTION
                4.5
            Litigation
            23SECTION
                4.6
            Brokers
            23






i




ARTICLE
                V
            Covenants
            23SECTION
                5.1
            Conduct
                of Business
            23SECTION
                5.2
            Access
                to Information
            24SECTION
                5.3
            Inventory
            25SECTION
                5.4
            Third
                Party Consents
            25SECTION
                5.5
            Expenses
            27SECTION
                5.6
            No
                Additional Representations
            27SECTION
                5.7
            Certain
                Information
            27SECTION
                5.8
            Bulk
                Transfer laws
            29SECTION
                5.9
            Cooperation
                of the Parties; Further Assurances
            29SECTION
                5.10
            Allocation;
                Tax Matters
            29SECTION
                5.11
            Proration
                of Certain Assets and Liabilities
            31SECTION
                5.12
            Supplemental
                Disclosure
            32SECTION
                5.13
            Parent
                Trademarks
            32SECTION
                5.14
            Insurance
            33SECTION
                5.15
            Guarantees
                of Parent and Sellers
            34SECTION
                5.16
            Governmental
                Approval
            34SECTION
                5.17
            Commitment
                Letter
            35SECTION
                5.18
            Nonsolicitation
            35SECTION
                5.19
            Confidential
                Information
            35SECTION
                5.20
            True-up
                for Gift Cards and Deposits for Special Orders
            36ARTICLE
                VI
            Employees
            38SECTION
                6.1
            General
            38SECTION
                6.2
            Employee
                Benefits
            39ARTICLE
                VII
            Merchandise
            40SECTION
                7.1
            Merchandise
                Returns
            40SECTION
                7.2
            Merchandise
                Repairs
            40SECTION
                7.3
            Merchandise
                Consignments
            41ARTICLE
                VIII
            Conditions
                Precedent
            41SECTION
                8.1
            Conditions
                to Each Party’s Obligation
            41SECTION
                8.2
            Conditions
                to Obligation of Purchaser
            41SECTION
                8.3
            Conditions
                to Obligation of Sellers
            42ARTICLE
                IX
            Termination,
                Amendment and Waiver
            43SECTION
                9.1
            Termination
            43SECTION
                9.2
            Amendments
                and Waivers
            45ARTICLE
                X
            Indemnification
            45SECTION
                10.1
            Indemnification
                by Parent and Sellers
            45SECTION
                10.2
            Indemnification
                by Purchaser and Finlay
            46SECTION
                10.3
            Losses
                Net of Insurance; No Punitive Damages; Etc.
            47SECTION
                10.4
            Termination
                of Indemnification
            48


ii
  SECTION
                  10.5
              Procedures
                  Relating to Third-Party Claims
              48SECTION
                  10.6
              Procedures
                  Relating to Non-Third-Party Claims
              50SECTION
                  10.7
              Acknowledgment
              50ARTICLE
                  XI
              General
                  Provisions
              50SECTION
                  11.1
              Notices
              50SECTION
                  11.2
              Severability
              51SECTION
                  11.3
              Counterparts
              52SECTION
                  11.4
              Entire
                  Agreement; No Third Party Beneficiaries
              52SECTION
                  11.5
              Attachments
              52SECTION
                  11.6
              Governing
                  Law
              52SECTION
                  11.7
              Consent
                  to Jurisdiction; Waiver of Jury Trial
              52SECTION
                  11.8
              Publicity
              53SECTION
                  11.9
              Assignment
              53ARTICLE
                  XII
              Definitions
              53SECTION
                  12.1
              Definitions
              53SECTION
                  12.2
              Construction
                  and Interpretation of Certain Terms and Phrases
              61




EXHIBITS




Exhibit
                A
            Form
                of Transition Services
                Agreement


iii


**ASSET
      PURCHASE AGREEMENT**




This
      Asset Purchase Agreement (this “ Agreement ”)
      is
      made and entered into as of September 27, 2007, by and among Zale Corporation,
      a
      Delaware corporation (“ Parent ”),
      Zale
      Delaware, Inc., a Delaware corporation (“ Opco ”),
      TXDC,
      L.P., a Texas limited partnership (“ Inventory
      Company ,”
and,
      together with Opco, “ Sellers ”),
      Finlay Fine Jewelry Corporation, a Delaware corporation (“ Purchaser ”)
      and,
      for limited purposes, Finlay Enterprises, Inc., a Delaware corporation
      (“ Finlay ”).




PRELIMINARY
      STATEMENT




WHEREAS,
      Sellers currently own certain assets that are operated as a division known
      as
      the Bailey Banks & Biddle brand (the “ Business ”);




WHEREAS,
      the Business is engaged in the business of operating as a specialty retailer
      of
      fine jewelry; and




WHEREAS,
      Sellers and Purchaser wish to provide for the sale to Purchaser of the Acquired
      Assets and the assumption by Purchaser of the Assumed Liabilities (as such
      terms
      are hereinafter defined), upon the terms and subject to the conditions set
      forth
      in this Agreement.




NOW,
      THEREFORE, in consideration of the mutual representations, warranties, covenants
      and agreements herein contained, and for other good and valuable consideration,
      the receipt and sufficiency of which are hereby acknowledged, the parties,
      intending to be legally bound, agree as follows:




ARTICLE
      I


Purchase
      and Sale of Acquired Assets ;
      Assumption of Assumed Liabilities




SECTION
      1.1 Purchase
      and Sale .
      Upon
      the terms and subject to the conditions of this Agreement, at the Closing and
      for the consideration specified in this Article I, Sellers agree to sell,
      assign, transfer, convey and deliver to Purchaser all of their right, title
      and
      interest in, to and under the Acquired Assets free and clear of all Liens,
      other
      than Permitted Liens and the Assumed Liabilities as of the Effective Time,
      and
      Purchaser agrees to purchase, acquire and accept from Sellers all such right,
      title and interest in, to and under the Acquired Assets free and clear of all
      Liens, other than Permitted Liens and to assume, be responsible for and perform
      when due all the Assumed Liabilities.




SECTION
      1.2 Acquired
      Assets and Excluded Assets .




(a)  Except
      as
      set forth below or in Section 1.2(b), the term “ Acquired
      Assets ”
shall
      mean all right, title and interest of Sellers as of the Effective Time in,
      to
      and under all of Sellers’ assets, privileges, claims, rights and properties of
      whatever kind or nature, real and personal, tangible and intangible, absolute
      or
      contingent, owned, held or leased by Sellers exclusively related to or primarily
      used in the operation of the Business, including, but not limited to, the
      following assets (even if they are not exclusively related to or primarily
      used
      in the Business):







(i)  subject
      to the terms of Sections 1.3(c) and 5.4 all leaseholds and other interests
      in
      real property of Sellers listed on Schedule
      1.2(a)(i ),
      together with Sellers’ right, title and interest in and to all improvements,
      facilities, fixtures and all other appurtenances thereto (the “ Real
      Property ”);




(ii)  all
      furniture, machinery, equipment, and personal property owned by Sellers that
      is
      located at the Real Property, including without limitation, all counters,
      countertops, tables, chairs, shelving, countertop fixtures, showcases, case
      elements, display equipment, jewelry fixtures, mirrors, floors, floor coverings,
      signholders and signs, lamps, chandeliers and special lighting fixtures, wall
      coverings, diamond/cz checkers, safes and associated combinations, locks and
      associated keys, alarm system equipment, telephone equipment, calculators,
      point
      of sale terminals, photocopy and facsimile equipment, repair and other tools,
      other movable personal property and special décor (the “ Personal
      Property ”);




(iii)  all
      fine
      jewelry, watches, giftware, raw materials, work in process, and other
      merchandise that are held for or in connection with the Business and that are
      located in Sellers’ central office and distribution center in Dallas/Fort Worth,
      Texas (the “ Distribution
      Center ”)
      or at
      the Real Property or are in transit to either, but excluding merchandise held
      on
      consignment (the “ Inventory ”);




(iv)  all
      of
      Sellers’ and Parent’s store-level data, including all data relating to the
      Leases (as hereinafter defined) used in connection with Accruent Retail Lease
      Administration software as well as any documentation relating to Lease
      extensions, renewals, proposed modifications, store relocations and closures
      (the “ Seller
      Data ”);




(v)  all
      goodwill relating to the operation of the Business, if any, and all advertising
      and promotional materials and all other printed or other written materials
      exclusively related to or primarily used in connection with the operation of
      the
      Business;




(vi)  subject
      to the terms of Sections 1.3(c) and 5.4, the contracts, distribution
      arrangements, vendor, sales, purchase, advertising and similar agreements,
      equipment leases, Leases, gift cards, layaway arrangements, independent
      contractor agreements, consignment agreements and arrangements transferred
      in
      accordance with Section 7.3 hereof, other agreements and business arrangements
      (written or oral) to which either Seller or Parent is a party and that are
      exclusively related to or primarily used in connection with the operation of
      the
      Business (the “ Contracts ”);




(vii)  the
      trademarks, service marks and trade names owned by Sellers or Parent and listed
      on Schedule
      1.2(a)(vii) ,
      and any
      registrations or applications therefor and the goodwill appurtenant thereto
      (the
“ Specified
      Marks ”);


2


(viii)  the
      domain names, copyrights, copyright registrations, and copyright licenses listed
      on Schedule
      1.2(a)(viii )
      and all
      inventions, trade secrets, confidential know-how, formulae, processes and
      procedures exclusively related to or primarily used in connection with the
      Business; provided, however, that Sellers shall retain a perpetual, royalty
      free
      non-exclusive right and license to use, sell, lease, license, reproduce,
      distribute and modify all trade secrets, confidential know-how, formulae,
      processes and procedures which are also currently being used by Sellers in
      its
      other businesses, which license shall be transferable in the event of the sale
      or transfer of part or all the assets or stock of Sellers;




(ix)  the
      permits, certifications, franchises, licenses, consents, approvals and
      authorizations and all pending applications therefor, whether federal, state
      or
      local, held by Sellers or Parent relating exclusively to or primarily used
      in
      connection with the operation of the Business (“ Permits ”)
      that
      are listed on Schedule 1.2(a)(ix) ,
      to the
      extent their transfer is permitted under applicable laws;




(x)  all
      product packagings, bags, watch and jewelry boxes, cases, packing materials,
      sales checks and other forms, paper products, business cards and thank you
      notes, cleaning and polishing materials and cloths and other supplies located
      at
      the Real Property or that otherwise are exclusively related to or primarily
      used
      in connection with the operation of the Business (the “ Supplies ”);




(xi)  copies
      of
      Sellers’ and Parent’s books and records that are exclusively related to or
      primarily used in the operation of the Business including inventory records
      and
      lists, price lists, maintenance files, customer complaints and inquiry files,
      marketing information, sales records, records (if any) pertaining to customers
      (including purchase histories) and accounts, and lists and records pertaining
      to
      suppliers;




(xii)  to
      the
      extent assignable, any telephone lines at the Real Property;




(xiii)  any
      cash
      in the form of legal currency of the United States on hand at any of the
      locations of the Business that is used as petty cash in the ordinary course
      of
      the operation of the Business (“ Petty
      Cash ”);




(xiv)  any
      deposits related exclusively to the Real Property and, subject to the proration
      provisions contained in Section 5.11, any current prepaid expenses or other
      similar assets exclusively related to the operation of the
      Business;




(xv)  (A)
      all
      rights, claims, causes of action, recoveries and rights of reimbursement
      (whether known or unknown) arising out of or primarily related to the Business
      or the Acquired Assets or, except as set forth in Section 1.3(b)(x), the Assumed
      Liabilities, and (B) all claims and proceeds under Sellers’ or Parent’s
      insurance policies arising from or relating to the Acquired Assets or the
      Assumed Liabilities occurring or otherwise relating to losses occurring during
      the period from the date hereof until the Effective Time (or at such later
      date
      when such Acquired Asset or Assumed Liability is transferred in accordance
      with
      Section 5.4), provided , however ,
      that
      Sellers shall be entitled to first satisfy from any such proceeds any losses
      covered by such insurance incurred by Sellers with respect to the Acquired
      Assets or the Assumed Liabilities from the date hereof until the Effective
      Time
      (or at such later date when such Acquired Asset or Assumed Liability is
      transferred in accordance with Section 5.4), and any deductible applicable
      specifically to such losses shall be shared by the parties in proportion to
      the
      proceeds received;


3




(xvi)  all
      merchandise on consignment to be transferred to Purchaser pursuant to Section
      7.3; and




(xvii)
      to
      the extent transferable under applicable law, all personnel files, workers’
compensation files, employee medical files and other employee books, operating
      manuals and records, and affirmative action plans and related books and records
      pertaining to the Transferring Employees.




Notwithstanding
      the foregoing, the transfer of the Acquired Assets pursuant to this Agreement
      shall not include the assumption of any obligation or liability related to
      the
      Acquired Assets unless Purchaser expressly assumes that obligation or liability
      pursuant to Section 1.3(b).





(b)  Notwithstanding
      anything in this Agreement to the contrary, all assets, properties and rights
      of
      Sellers or any of their affiliates not specifically identified as Acquired
      Assets pursuant to Section 1.2(a) and the following assets, properties and
      rights of Sellers or any of their affiliates (collectively, the “ Excluded
      Assets ”),
      shall
      be excluded from and shall not constitute any part of the Acquired
      Assets:




(i)  other
      than Petty Cash, all cash and cash equivalents on hand or in banks, all bank
      accounts, all lock box receipts and lock boxes and all certificates of deposit
      and other bank deposits owned or held by Sellers or any of their
      affiliates;




(ii)  all
      accounts receivable (the “ Accounts
      Receivable ”);




(iii)  all
      rights of Sellers or any of their affiliates under this Agreement and the
      Ancillary Documents to which they are a party, qualifications to conduct
      business, taxpayer and other identification numbers, corporate seals, minute
      books, stock transfer records, and any other document relating to the
      organization, maintenance or existence of Sellers as legal entities, and all
      records of Sellers pertaining to the Excluded Assets and the Excluded
      Liabilities;




(iv)  (A)
      all
      records prepared in connection with the sale of the Business, including bids
      received from third persons and analyses relating to the Business, and (B)
      any
      confidential information of third parties that is contained within records
      relating to the Business and that is not part of the Acquired Assets, or
      otherwise held under an obligation of confidentiality not assumed by Purchaser
      pursuant to this Agreement or for which consent for such assumption is necessary
      and not obtained;


4




(v)  all
      rights, claims, causes of action, recoveries and rights of reimbursement arising
      out of, relating to or otherwise in any way in respect of the Excluded
      Liabilities or the Excluded Assets, including, except as provided in Section
      1.2(a)(xv), rights, claims, causes of action and recoveries under insurance
      policies relating thereto or to the Business;




(vi)  all
      rights to and all claims available to or being pursued by Sellers or any of
      their affiliates for refunds of or credits against Taxes attributable to Sellers
      or any of their affiliates arising out of, relating to or otherwise in any
      way
      in respect of Pre-Closing Tax Periods (determined as if such taxable period
      ended as of the Effective Time);




(vii)  any
      consolidated, combined, unitary or separate company Tax Return arising out
      of,
      relating to or otherwise in any way in respect of Taxes that includes Sellers
      or
      any of their affiliates and records and work papers used in preparation
      thereof;




(viii)  all
      rights of Sellers or any of their affiliates arising out of, relating to or
      otherwise in any way in respect of any Intercompany Accounts;




(ix)  any
      asset
      arising out of, relating to or otherwise in any way in respect of any benefit
      plan of Sellers, including, but not limited to, the right to receive assets
      of
      any such plan upon termination thereof;




(x)  all
      Intellectual Property not specifically included in the Acquired Assets,
      including without limitation the items listed on Schedule
      1.2(b)(x) ;




(xi)  all
      personnel files, workers’ compensation files, employee medical files and other
      employee books, operating manuals and records, and affirmative action plans
      and
      related books and records pertaining to the Employees, except that copies of
      such information shall be provided to Purchaser to the extent it relates to
      Transferring Employees and is transferable under applicable law;




(xii)  all
      policies of insurance of Sellers or any of their affiliates and, except as
      provided in Section 1.2(a)(xv), all of the rights of Sellers or any of their
      affiliates thereunder;




(xiii)  all
      assets, properties and rights of Sellers or any of their affiliates identified
      on Schedule
      1.2(b)(xiii) ;
      and




(xiv)  any
      computer equipment or computer software used in connection with the operation
      of
      the Business that is not located at the Real Property or on the point of sale
      terminals.


5


SECTION
      1.3 Assumption
      of Liabilities .




(a)  Except
      as
      set forth below, upon the terms and subject to the conditions of this Agreement,
      Purchaser hereby agrees to assume, from and after the Effective Time, and agrees
      at all times thereafter to be responsible for, pay, perform and discharge when
      due only the following liabilities, obligations and commitments, whether
      contingent or otherwise (collectively, the “ Assumed
      Liabilities ”):




(i)  all
      obligations and liabilities arising out of consumer warranties, diamond bonds,
      trade-in obligations, store credits, merchandise returns and jewelry care plans;




(ii)  all
      obligations and liabilities arising out of, relating to or otherwise in any
      way
      in respect of all Contracts, excluding liabilities occurring or relating to
      the
      period prior to the Effective Time or resulting from any breach arising out
      of
      the assignment of such Contracts;




(iii)  Sellers’
      liabilities and obligations for capital expenditures and other costs to be
      paid
      after the Effective Time and made consistent with Section 5.1 hereof for the
      acquisition, renovation or repair of fixed or capital assets of the Business
      that are also Acquired Assets;




(iv)  to
      the
      extent provided in Article VI, all obligations and liabilities arising out
      of,
      relating to or otherwise in any way in respect of any Transferring Employee
      with
      respect to periods from and after the Effective Time, but excluding any
      liabilities or obligations that are Excluded Liabilities as provided in Section
      1.2(b)(vi);




(v)  all
      obligations and liabilities arising out of, relating to or otherwise in any
      way
      in respect of Taxes attributable to the Business and the Acquired Assets for
      all
      taxable periods from and after the Effective Time;




(vi)  all
      obligations and liabilities arising out of, relating to or otherwise in any
      respect of Permitted Liens, but only to the extent that any such Permitted
      Lien
      relates to an Assumed Liability under Section 1.3(a)(ii) or Section 1.3(a)(iii)
      hereof; and




(vii)  all
      obligations and liabilities identified on Schedule
      1.3(a)(vii) .




Except
      as
      expressly provided in this Agreement or in the Ancillary Documents, Purchaser
      shall not assume or be liable, nor be deemed to have assumed or be liable for,
      any liability or obligation of the Sellers or Parent of any nature
      whatsoever.




(b)  Purchaser
      will not assume any liabilities of Sellers or Parent or any of their affiliates
      other than the Assumed Liabilities (all such liabilities that are not being
      assumed by Purchaser, the “ Excluded
      Liabilities ”),
      including, but not limited to, the following liabilities:


6




(i)  except
      as
      otherwise specifically provided in Section 1.3(a), any obligations or
      liabilities of Sellers or any of their affiliates to the extent arising out
      of,
      relating to or otherwise in any way in respect of the Excluded
      Assets;




(ii)  all
      obligations and liabilities arising out of, relating to or otherwise in any
      way
      in respect of the merchandise sold on or prior to the Effective Time, except
      for
      consumer warranties, diamond bonds, trade-in obligations, store credits,
      merchandise returns and jewelry care plans assumed pursuant to Section
      1.3(a)(i);




(iii)  all
      accounts payable and accrued expenses and liabilities (except for the portion
      of
      such expenses or liabilities that are subject to proration as provided in
      Section 5.11) owed by Sellers or Parent in connection with the Business
      occurring or relating to the period prior to the Effective Time or resulting
      from the transactions contemplated by this Agreement;




(iv)  any
      obligations or liabilities of Sellers or any of their affiliates arising out
      of,
      relating to or otherwise in any way in respect of any Intercompany
      Accounts;




(v)  any
      obligations or liabilities of Sellers or any of their affiliates arising out
      of,
      relating to or otherwise in any way in respect of this Agreement or the
      Ancillary Documents;




(vi)  any
      obligations or liabilities arising out of, relating to, or otherwise in any
      way
      in respect of employment by Sellers of any employee or former employee prior
      to
      the Effective Time, any incident or event occurring during the term of
      employment by Sellers of any employee or former employee, or any injury suffered
      or illness contracted or any exposure to any substance or condition by any
      such
      employee or former employee while so employed by Sellers or Parent at or prior
      to the Effective Time, in each case whether or not such employee or former
      employee is later employed by Purchaser;




(vii)  any
      obligations or liabilities arising out of, relating to or otherwise in any
      way
      in respect of any Employee Benefit Plans or any other “employee benefit plan”
(as defined in Section 3(3) of ERISA) sponsored, maintained or contributed
      by
      (or with respect to which any obligation to contribute has been undertaken)
      any
      of the Sellers, Parent or any ERISA Affiliate;




(viii)  all
      obligations and liabilities arising out of Contracts occurring or relating
      to
      the period prior to the Effective Time or resulting from the transactions
      contemplated by this Agreement (excluding any liabilities relating to rent
      increase provisions set forth in the Leases);




(ix)  (A)
      any
      Tax liabilities of Sellers and (B) any liabilities for Taxes related to the
      Business or the Acquired Assets related to the Pre-Closing Tax Periods. For
      the
      avoidance of doubt, the parties acknowledge that the Tax liabilities related
      to
      the Business or the Acquired Assets related to the Post-Closing Periods are
      not
      Excluded Liabilities and further, for the avoidance of doubt, the liability
      for
      Transfer Taxes incurred as a consequence of the transactions contemplated by
      the
      Agreement is governed by Section 5.10(b);


7




(x)  any
      liability or obligation arising out of any cause of action or judicial or
      administrative action, suit, proceeding, investigation or any other liability
      relating to any event occurring, or facts, circumstances or conditions existing
      prior to the Effective Time (whether known or unknown and whether asserted
      before or after the Closing Date), including any currently pending causes of
      action or judicial or administrative actions, suits, proceedings or
      investigations (including those listed on Schedules
      3.7 and 3.18 ),
      regardless of whether such obligation or liability would constitute a breach
      of
      a representation or warranty of Parent or Sellers set forth in this Agreement
      or
      any Ancillary Document; and




(xi)  all
      other
      liabilities or obligations of Parent or Sellers not acquired or assumed by
      Purchaser pursuant to this Agreement, whether or not pertaining to the
      Business.




(c)  Notwithstanding
      anything to the contrary contained herein, but subject to the provisions of
      Section 5.4, this Agreement shall not operate to assign any Acquired Asset
      or
      any claim, right or benefit arising thereunder or resulting therefrom if an
      attempted assignment thereof, without the consent of any Governmental Entity
      or
      any other Person, would constitute a breach, default or other contravention
      or a
      violation of applicable law. Sellers and Purchaser shall each use commercially
      reasonable efforts to obtain the consent of such Persons for the assignment
      thereof to Purchaser prior to the Closing (it being understood that the failure
      to obtain such consents shall not relieve any party from its obligation to
      consummate the Closing of the transactions contemplated by this Agreement except
      to the extent provided in Section 8.1) and otherwise shall comply with the
      provisions of Section 5.4.





(d)  Notwithstanding
      that Excluded Liabilities include (i) all gift cards issued prior to the
      Effective Time to the extent not redeemed by the Effective Time (“ Previously
      Issued Gift Cards ”)
      and
      (ii) all layaways as of the Effective Time (“ Previously
      Issued Layaways ”),
      Purchaser agrees to honor, subject to the terms and provisions of Section 5.20
      hereof, such Previously Issued Gift Cards and fulfill all Previously Issued
      Layaways following the Effective Time. Purchaser’s performance with respect to
      such Previously Issued Gift Cards and Previously Issued Layaways after the
      Closing shall not be deemed an assignment or transfer to Purchaser of the
      obligations and liabilities of Sellers thereunder. The parties acknowledge
      that
      Sellers have collected all cash with respect to the Previously Issued Gift
      Cards
      and Previously Issued Layaways and any obligations pertaining to compliance
      with
      laws with respect thereto, including the laws of escheat, shall remain the
      obligation of Sellers or their affiliates.





SECTION
      1.4 Purchase
      Price .




The
      aggregate purchase price for the Acquired Assets shall be the sum of (i)
      $200,000,000.00, plus (ii) the
      assumption of the Assumed Liabilities minus (iii)
      any adjustments specified on Schedule
      1.4 (collectively, the “ Purchase
      Price ”),
      payable as set forth in Section 2.2(b)(i), except that any adjustment specified
      in Schedule
      1.4 shall be
      determined as set forth therein.


8




ARTICLE
      II


The
      Closing




SECTION
      2.1 Closing
      Date .
      The
      closing of the sale and transfer of the Acquired Assets and the assumption
      of
      the Assumed Liabilities (the “ Closing ”)
      shall
      take place at the offices of Troutman Sanders, LLP, The Chrysler Building,
      405
      Lexington Avenue, New York, NY 10174, at 11:00 a.m., local time, on (a) the
      last
      Business Day of Sellers’ fiscal month in which the last of the conditions set
      forth in Article VIII are (and remain as of the last day of such fiscal month
      of
      Sellers satisfied or waived (other than conditions that by their nature are
      to
      be satisfied at the Closing, but subject to the satisfaction or waiver of such
      conditions), or (b) such other time, date or place as Sellers and Purchaser
      may
      agree in writing. (The date on which the Closing shall occur is herein referred
      to as the “ Closing
      Date .”)
      The
      Closing shall be deemed to have occurred, for all purposes, as of the Effective
      Time.




SECTION
      2.2 Transactions
      to be Effected at the Closing .




(a)  At
      the
      Closing, Parent and Sellers, as the case may be, shall deliver or cause to
      be
      delivered to Purchaser the following:




(i)  such
      appropriately executed bills of sale, assignments and other instruments of
      transfer as shall be necessary for the sale, assignment, transfer, conveyance
      and delivery as contemplated by this Agreement of the Acquired Assets (it being
      understood that any such bill of sale, assignment or other instrument shall
      not
      provide for any representations or warranties or any obligations or liabilities
      that are not otherwise expressly provided for in this Agreement);




(ii)  a
      duly
      executed copy of each of the Ancillary Documents to be executed at the Closing
      to which Sellers or any of their affiliates are parties; and




(iii)  such
      other instruments or documents, the delivery of which is a condition to Closing,
      as Purchaser may reasonably request (it being understood that any such other
      instrument or document shall not provide for any representations or warranties
      or any obligations or liabilities that are not otherwise expressly provided
      for
      in this Agreement).




(b)  At
      the
      Closing, Purchaser shall deliver or cause to be delivered (or, with respect
      to
      Section 2.2(b)(i), Finlay shall cause Purchaser to deliver) to Sellers the
      following:


9


(i)  by
      wire
      transfer to an account designated in writing by Sellers prior to the Closing,
      immediately available U.S. funds in an amount equal to the cash portion of
      the
      Purchase Price specified in Section 1.4(i);




(ii)  such
      appropriately executed assumption agreements and other instruments of assumption
      providing for Purchaser’s assumption of, and indemnification of Parent and
      Sellers and their affiliates from and against, the Assumed Liabilities as
      contemplated by this Agreement (it being understood that any such agreement
      or
      instrument shall not provide for any representations or warranties or any
      obligations or liabilities that are not otherwise expressly provided for in
      this
      Agreement);




(iii)  such
      other instruments or documents, the delivery of which is a condition to Closing,
      as Sellers may reasonably request (it being understood that any such other
      instrument or document shall not provide for any representations or warranties
      or any obligations or liabilities that are not otherwise expressly provided
      for
      in this Agreement); and




(iv)  a
      duly
      executed copy of each of the Ancillary Documents to be executed at Closing
      to
      which Purchaser or any of its affiliates is a party.




Section
      2.3  Inventory
      True-Up .




(a)  Beginning
      ten days prior to the scheduled Closing Date, representatives of Purchaser
      and
      Sellers, supervised or observed, if requested by either Purchaser or Sellers
      (and at the requesting party’s sole expense), by Grant Thornton LLP, shall
      conduct a physical count of the Inventory at the Real Property and the
      Distribution Center such physical count to be brought forward and adjusted
      (utilizing perpetual inventory records) through the close of business
      immediately prior to the Effective Time, using methodology consistent with
      past
      practices and GAAP principles (“ Inventory
      Count ”) **.** It
      is
      acknowledged and agreed that all expenses incurred by and all sales made by
      the
      Business on and after the Effective Time shall be for the account and benefit
      of
      Purchaser. The value of the Inventory (the “ Closing
      Inventory Value ”)
      shall
      be determined based on Sellers’ cost for such Inventory as reflected on Sellers’
books and records (including freight in and freight out, excluding reserves).
      In
      connection with the calculation of the Closing Inventory Value, Purchaser and
      its independent accountants, if requested by Purchaser, will have reasonable
      access to all requisite accounting and other records of Sellers and to the
      Real
      Property and the Distribution Center, if necessary. The parties will use their
      respective reasonable best efforts to complete an estimate of said count by
      no
      later than one day prior to Closing. The Inventory Count shall be completed
      no
      later than three days after the Closing. If the parties cannot agree upon the
      Closing Inventory Value based upon the Inventory Count three days after the
      Closing, the parties shall submit such matter to a mutually agreed upon third
      party for review and resolution, with the fees and expenses thereof to be shared
      equally by the parties; and any determination by such party shall be final
      and
      binding upon the parties.


10


(b)  Immediately
      following the determination of the Closing Inventory Value, but in no event
      later than three Business Days after the Closing Date, Purchaser or Sellers,
      as
      the case may be, shall pay (or in the event that Purchaser shall be obligated
      to
      pay, Finlay shall cause Purchaser to pay) by wire transfer to the other party
      immediately available U.S. funds in an amount equal to the excess or shortfall,
      as the case may be, of the Closing Inventory Value as compared to $189,000,000,
      subject to a maximum payment by Purchaser of $26,000,000. Notwithstanding the
      foregoing, to the extent that all or a portion of the Closing Inventory Value
      is
      being disputed in good faith, the disputed portion shall not be payable at
      the
      time specified in the preceding sentence but instead shall become due and shall
      be paid within three (3) Business Days following the resolution of such dispute.
      If not paid when due, interest shall accrue on the amount due at a rate equal
      to
      the lesser of (a) 12% per annum or (b) the maximum rate permitted by
      law.




ARTICLE
      III


Representations
      and Warranties of Parent and Sellers




Parent
      and Sellers hereby jointly and severally represent and warrant to Purchaser,
      subject to such qualifications and exceptions as are disclosed in writing in
      the
      applicable Schedules as follows:




SECTION
      3.1 Organization,
      Standing and Power .
      Parent
      and Opco are corporations duly organized, validly existing and in good standing
      under the laws of their state of organization. Inventory Company is a limited
      partnership duly organized, validly existing and in good standing under the
      laws
      of its state of organization. Parent and Sellers have the requisite corporate
      or
      partnership, as applicable, power and authority to execute and deliver this
      Agreement and the Ancillary Documents to which they are a party, to perform
      fully their obligations under this Agreement and to consummate the transactions
      contemplated hereby and thereby. Parent and Sellers are qualified to conduct
      business as foreign entities in each jurisdiction in which the conduct by them
      of their businesses, including the Business, or ownership of their assets,
      including the Acquired Assets, makes such qualification necessary, except where
      the failure to be so qualified would not, individually or in the aggregate,
      have
      a Material Adverse Effect.




SECTION
      3.2 Authority .
      Parent
      and each Seller has the requisite corporate or partnership, as applicable,
      power
      and authority to own or lease, as applicable, its assets, including the Acquired
      Assets, and to operate the Business as currently operated. The execution and
      delivery of this Agreement and the Ancillary Documents to which Parent and
      each
      Seller is a party and the consummation of the transactions contemplated hereby
      and thereby have been duly and validly authorized by all necessary corporate
      or
      partnership action on the part of Parent and Sellers, and no other proceedings
      on the part of Parent or either Seller are necessary to authorize such
      execution, delivery and performance. This Agreement has been duly and validly
      executed and delivered by Parent and Sellers and constitutes, and the Ancillary
      Documents, when executed and delivered by Sellers and Parent, shall constitute
      the legal, valid and binding obligation of Parent and Sellers enforceable
      against Parent and Sellers in accordance with their respective terms, except
      as
      enforceability may be limited by bankruptcy, insolvency or other laws affecting
      the enforcement of creditors’ rights generally, and except that the availability
      of the remedy of specific performance or other equitable relief is subject
      to
      the discretion of the court before which any proceeding therefor may be
      brought.




11




SECTION
      3.3 No
      Conflicts .




(a)  The
      execution and delivery of this Agreement and the Ancillary Documents to which
      they are a party by Parent and Sellers does not, and the consummation by Parent
      and Sellers of the transactions contemplated hereby and thereby and the
      compliance by Parent and Sellers with the terms of this Agreement and the
      Ancillary Documents to which they are a party, will not, conflict with, or
      result in any violation of or default (with or without notice or lapse of time,
      or both) under, or give rise to a right of termination, cancellation or
      acceleration of any obligation or loss of a material benefit under, or result
      in
      the creation of any Lien (other than a Permitted Lien) upon any of the Acquired
      Assets under any provision of (i) the organizational documents of Parent or
      Sellers, (ii) subject to the filings and other matters referred to in the
      following paragraph (b), any law, judgment, order, decree, statute, ordinance,
      rule or regulation applicable to Parent or Sellers or the Acquired Assets,
      the
      Assumed Liabilities or the Business, or (iii) any Contract; except, in the
      case
      of clause (ii) or (iii), for any such conflicts, violations, defaults, rights
      or
      Liens that would not, individually or in the aggregate, be material to the
      Business or the Acquired Assets, in each case taken as a whole. This Section
      3.3(a) does not apply to the need for consents of landlords with respect to
      Leases.




(b)  No
      consent, approval, license, permit, order or authorization of, or registration,
      declaration or filing with, any Governmental Entity is required to be obtained
      or made by Parent or Sellers with respect to the Acquired Assets, the Assumed
      Liabilities or the Business in connection with the execution and delivery of
      this Agreement or the Ancillary Documents or the consummation of the
      transactions contemplated hereby or thereby, except for (i) compliance with
      and
      filings under the HSR Act, and (ii) those the failure of which to obtain or
      make
      would not, individually or in the aggregate, be material to the Business or
      the
      Acquired Assets, in each case taken as a whole.




SECTION
      3.4 Compliance
      with Applicable Laws .
      Parent
      and Sellers have complied and currently are in compliance in all material
      respects with all laws, regulations, rules and orders of all Governmental
      Entities applicable to them that relate to the Acquired Assets, the Assumed
      Liabilities or the Business. During the past twelve months, with respect to
      the
      Business, none of Parent and Sellers has received any written notice from a
      Governmental Entity and no action, investigation or arbitration has been filed
      or commenced alleging any non-compliance with any such laws, regulations, rules
      or orders in any material respect. Each material Permit is in full force and
      effect, and Sellers are in compliance in all material respects with the terms
      of
      such Permits, and there are no actions, investigations, arbitrations or
      proceedings pending or, to the Knowledge of Parent and Sellers, threatened
      that
      may result in the revocation, cancellation, suspension or modification of any
      such Permit. This Section 3.4 does not apply to environmental matters (to which
      Section 3.16 is applicable), Tax matters (to which Section 3.17 is applicable)
      or labor matters (to which Section 3.18 is applicable).




12




SECTION
      3.5 Financial
      Statements; Books and Records .
      Attached hereto on Schedule
      3.5(a) are (a)
      unaudited balance sheet data of the Business at July 31, 2006 and the related
      unaudited statement of operations for the fiscal year then ended and (b)
      unaudited balance sheet data of the Business at July 31, 2007 and the related
      unaudited statement of operations for the fiscal year then ended (the
“ 2007
      Unaudited Financials ”)
      ((a)
      and (b), collectively, the “ Financial
      Statements ”).
      The
      Financial Statements are true, correct and complete and are consistent with
      the
      books and records of Sellers and Parent and present fairly in all material
      respects the financial condition and results of operations of the Business,
      for
      the periods or as of the dates set forth therein, in conformity with GAAP,
      except as set forth on Schedule
      3.5(b) .




SECTION
      3.6 Absence
      of Certain Changes .
      Except
      as set forth on Schedule
      3.6 ,
      since
      January 1, 2007 Sellers have conducted the Business in the ordinary and usual
      course consistent with past practice, and there has occurred no fact, event
      or
      circumstance which, individually or in the aggregate, has had or could
      reasonably expected to have a Material Adverse Effect. Without limiting the
      foregoing, since January 1, 2007:




(a)  Sellers
      have not mortgaged, pledged, subjected to any Liens (other than Permitted
      Liens), sold, transferred, leased, licensed, disposed of, or agreed to sell,
      transfer, lease, license or dispose of any of the Acquired Assets (including,
      without limitation, any Intellectual Property) other than the sale of Inventory
      in the ordinary course of the operation of the Business consistent with past
      practice;




(b)  Sellers
      have not made any material increase in the salary or other compensation of
      any
      Employee or entered into, terminated or amended in any material respect any
      employment, severance, change of control or termination agreement other than
      in
      the ordinary course of the operation of the Business consistent with past
      practice (and except as may be required under existing agreements or benefit
      plans with respect to an Employee);




(c)  Sellers
      have not delayed or postponed the payment of any accounts payable with respect
      to the Business other than in the ordinary course of the operation of the
      Business consistent with past practice;




(d)  Sellers
      have not granted any license or sublicense of any rights with respect to any
      Intellectual Property, or entered into any Contract with respect to any
      Intellectual Property;




(e)  Sellers,
      with respect to the Business, have not waived any material claims, rights or
      benefits of, or agreed to modify in any material respect, any non-compete or
      non-solicitation agreement to which either Seller is a party;




(f)  no
      damage, destruction or loss, whether or not covered by insurance, has occurred
      in the Business that is material to the Business or the Acquired Assets taken
      as
      a whole;




13


(g)  no
      vendor
      of the Business has terminated any Contract or course of dealing with the
      Business or has provided notice to the Sellers, Parent or any of its affiliates
      of its intention to take such action or to reduce its sales to the Business
      in a
      manner that would be material to the Business or Acquired Assets taken as a
      whole;




(h)  other
      than in the ordinary course of business, neither Sellers nor Parent have entered
      into (i) any transaction or contract relating to the acquisition or disposition
      of any Acquired Assets or (ii) any transaction or contract that is material
      to
      the Business or the Acquired Assets taken as a whole;




(i)  no
      labor
      dispute, other than routine individual grievances, or any activity or proceeding
      to organize any employees of the Business has occurred, and the Business has
      not
      suffered any lockouts, strikes, slowdowns, work stoppages or threats thereof
      by
      or with respect to its employees;




(j)  neither
      Sellers nor Parent has initiated, received or settled any action, suit or
      proceeding material to the Business or Acquired Assets taken as a
      whole;




(k)  there
      has
      been no material change or amendment to any Contract that is or would be
      required to be disclosed in Schedule
      3.9 or Schedule
      3.14 ,
      except
      in the ordinary course of business; and




(l)  Sellers
      have not agreed to take any action described above, except as contemplated
      by
      this Agreement.




SECTION
      3.7 Litigation;
      Decrees .
      Except
      as set forth on Schedule
      3.7 and
      except for any lawsuit, action or proceeding brought after the date of this
      Agreement by any Person seeking to delay or prevent, or otherwise challenging,
      the transactions contemplated by this Agreement and by the Ancillary Documents,
      there is no, and within the past twelve months there has not been any, claim,
      lawsuit, action, proceeding or investigation pending or, to the Knowledge of
      Parent or Sellers, threatened against or affecting Parent or Sellers related to
      the Business or the Acquired Assets, except for any matter that, if resolved
      in
      a manner adverse to Sellers or Parent would not, individually or in the
      aggregate, be material to the Business or the Acquired Assets. Sellers and
      Parent are in compliance in all material respects with each judgment, order,
      injunction or decree of any Governmental Entity or arbitrator entered against
      any of the Acquired Assets or against Parent or either Seller with respect
      to or
      affecting the Business, which judgments, orders, injunctions, and decrees are
      set forth on Schedule
      3.7 .
      True,
      correct and complete copies of such judgments, orders, injunctions, and decrees
      have been previously provided to the Purchaser.





SECTION
      3.8 Title
      to Acquired Assets .
      Sellers
      have, or at the Closing will have, good and valid title to (or in the case
      of
      leased Acquired Assets, own a valid leasehold interest in) all of the Acquired
      Assets free and clear of all Liens, except for Permitted Liens. Subject to
      Section 5.4 with respect to certain Contracts, at the Closing, Sellers will
      convey to Purchaser good and valid title, or a valid leasehold interest in,
      to
      all of the Acquired Assets (free and clear of any Liens except for Permitted
      Liens). This Section 3.8 does not apply to Real Property (which is
      exclusively the subject of Section 3.9), Intellectual Property (which is
      exclusively the subject of Section 3.12) or Contracts (which are
      exclusively the subject of Section 3.14).




14




SECTION
      3.9 Real
      Property .
      Schedule 3.9 sets forth a complete list of the names and locations of the Real
      Property and the names of the landlords with respect to the leases thereof
      (the
“ Leases ”).
      Opco
      is the lessee of all Real Property and is in possession of the Real Property
      subject to the Leases. The CD-ROMs containing electronic copies of the Leases,
      which were delivered to Proskauer Rose LLP on July 23, 2007, and September
      26,
      2007, together with an e-mail on September 26, 2007, with respect to store
      no.
      2074, contain complete copies of the documentation setting forth the material
      terms of all of the Leases.





SECTION
      3.10 Personal
      Property .
      The
      Personal Property included in the Acquired Assets necessary to operate the
      Business as it is presently conducted, is, in all material respects, in good
      working order (taking into account ordinary wear and tear and the need for
      ordinary, routine maintenance and repairs).




SECTION
      3.11 Advertising .
      Set
      forth on Schedule
      3.11 hereto
      is a true, correct and complete list or statement (to the extent each has been
      determined as of the date hereof) of the advertising allocations of the Business
      for the preceding fiscal year and of all advertising allocations in excess
      of
      $25,000 for all future periods. Sellers have delivered to Purchaser a correct
      and complete copy of the Business’ anticipated budget plans for advertising for
      the six month period beginning on the date hereof.




SECTION
      3.12 Intellectual
      Property .




(a)  Parent
      or
      Sellers own all right, title and interest in and to, or possess adequate
      licenses or other rights to use, all of the Intellectual Property used or held
      for use in connection with the Business (collectively, the “ Business
      IP ”). For
      the Business
      IP licensed
      for use by Parent or Sellers, Schedule
      3.12(a) sets
      forth each and every material license or other agreement (excluding customary
      licenses from vendors in connection with the sale of merchandise) by which
      Parent or Sellers have obtained rights to any such Business IP, together with
      the identity of the licensor (or vendor), the type of rights granted and the
      relevant Business IP.




(b)  Schedule
      3.12(b) sets
      forth a true and complete list of all actions, suits or proceedings pending
      or,
      to the Knowledge of Parent and Sellers, threatened against Sellers or Parent
      that involve the infringement, validity or ownership of Intellectual Property.
      Except as set forth in Schedule
      3.12(b) ,
      (i) to
      the Knowledge of Parent and Sellers, none of the commercial products of the
      Business or the operation of the Business infringes upon any patent, trademark,
      copyright or other Intellectual Property rights of any third party, (ii) no
      royalty or similar fee of any kind of more than $50,000 annually or in the
      aggregate is payable by Sellers or Parent for the use of any of the Business
      IP,
      (iii) to the Knowledge of Parent and Sellers, no third party has or is
      infringing, violating or misappropriating any Business IP and (iv) each license
      held by Parent or Sellers to use any Business IP is a legal, valid and binding
      obligation of Parent or Sellers and the relevant other parties thereto,
      enforceable in accordance with the terms thereof and the transactions
      contemplated by this Agreement will not breach the terms thereof or result
      in
      the loss or diminution of any rights in any Business IP.




15




(c)  There
      exists no Lien (except for Permitted Liens) in favor of any third party on
      any
      of the Business IP, and Parent and Sellers have not pledged, licensed,
      transferred or assigned to any third party any right, title or interest in
      or to
      the Business IP.




(d)  To
      the
      Knowledge of Parent and Sellers, the practices of Parent or Sellers with respect
      to the operation of the Business are, and have always been, in compliance in
      all
      material respects with its privacy policies, including the privacy statement
      posted on the Internet sites of the Business.





SECTION
      3.13 Insurance .
      The
      Acquired Assets are insured for the benefit of Sellers, and will be so insured
      until immediately prior to the Closing, in amounts and against risks consistent
      with the corporate practices of Parent. Except as set forth on Schedule
      3.13 ,
      there
      are no pending claims under such insurance policies relating to the Business
      or
      the Acquired Assets. Sellers have delivered to Purchaser a true, correct and
      complete copy of the history of all claims relating to the Business or the
      Acquired Assets that have been made since August 1, 2004 under such insurance
      policies.




SECTION
      3.14 Contracts .




(a)  Except
      for Contracts listed on Schedule
      3.9 or Schedule
      3.14(a) ,
      neither
      Parent nor either Seller is a party to or bound by any contract exclusively
      related to or primarily used in the Business or covering the Acquired Assets
      or
      the Assumed Liabilities that is:




(i)  a
      Contract not terminable by Sellers or Parent, as applicable, upon notice to
      the
      other party or parties thereto of ninety (90) days or less without penalty
      or
      premium;




(ii)  a
      Contract for the employment of any Person (A) with an annual base salary in
      excess of $250,000 or any consulting agreement or independent contractor
      agreement with any Person involving payments by Sellers in excess of $250,000;
      (B) that contains an obligation to pay severance upon termination of employment;
      or (C) that contains a requirement to make any payment or provide any
      benefit or contractual right as a result of a sale of substantially all of
      the
      Business or the termination of employment following a sale of the
      Business;




(iii)  a
      Contract with any labor union;




(iv)  other
      than the Ancillary Documents, a Contract with any director, officer, subsidiary
      or affiliate of Sellers that will not be terminated at or prior to the
      Closing;




16


(v)  a
      letter
      of credit, an indenture, note, loan or credit agreement or other Contract
      relating to the borrowing of money by either Seller or Parent or to the direct
      or indirect guarantee or assumption by Sellers or Parent of the obligations
      of
      any other Person (other than an affiliate of Sellers or Parent) for borrowed
      money, including any arrangement which has the economic effect although not
      the
      legal form of such a guarantee;




(vi)  a
      covenant not to compete;




(vii)  a
      lease
      or similar agreement under which any of Parent or either Seller (A) is lessee
      of, or holds or uses, any machinery, equipment, vehicle or other tangible
      personal property owned by any third Person for an annual rent in excess of
      $100,000 or (B) is lessor of, or makes available for use by any third Person,
      any tangible personal property owned (including ownership for Tax purposes)
      by
      Sellers having a fair market value in excess of $100,000;




(viii)  other
      than the Intercompany Accounts, a contract or agreement (including purchase
      orders) involving the obligation of Sellers or Parent to purchase products,
      including consignment inventory, or services for payment by the Business (or
      allocated to the Business) of more than $500,000 annually (unless terminable
      by
      Parent or Sellers (A) without payment or penalty or, as the case may be, with
      a
      payment or penalty of not more than $100,000 or (B) upon no more than ninety
      days’ notice);




(ix)  a
      mortgage, pledge, security agreement, deed of trust or other document granting
      a
      Lien upon any Acquired Asset (including Liens upon properties acquired under
      conditional sales, capital lease or other title retention or security
      devices);




(x)  an
      agreement concerning a partnership or joint venture of which the Parent or
      either Seller is a member;




(xi)  a
      material contract concerning confidentiality;




(xii)  a
      contract under which the consequences of default or termination reasonably
      could
      be expected to have a Material Adverse Effect;




(xiii)  any
      contract for the sale of any of the Acquired Assets (other than for the sale
      of
      Inventory in the ordinary course of business), or for the grant to any person
      of
      any option, right of first refusal or similar right to purchase any of the
      Acquired Assets (other than customary layaway arrangements);




(xiv)  other
      than pursuant to the Employment Benefit Plans listed on Schedule 3.20 ,
      any
      contract requiring the payment to any person of a brokerage or sales commission;
      or




(xv)  any
      contract involving the assignment, transfer or license (whether as licensee
      or
      licensor) of any of the material Intellectual Property that is part of the
      Acquired Assets (excluding any implied license that may attach as a result
      of
      sales of merchandise to customers).




17




(b)  With
      respect to each Contract that is required to be listed on Schedule
      3.9 or Schedule
      3.14(a) ,
      (i)
      such Contract is valid, binding and enforceable in accordance with its terms
      against Parent and Sellers, as applicable, (ii) to the Knowledge of Parent
      and
      Sellers, such Contract is valid, binding and enforceable in accordance with
      its
      terms against the other parties thereto, (iii) Sellers and Parent are not (with
      or without the lapse of time or the giving of notice, or both) in breach or
      default of such Contract, which default or breach, individually or in the
      aggregate with defaults and breaches under other such Contracts, would
      reasonably be expected to be material to the Business, (iv) to the Knowledge
      of
      Parent and Sellers, none of the other parties to such Contract are in breach
      or
      default thereof, which defaults or breaches, individually or in the aggregate
      with defaults and breaches under other such Contracts, would reasonably be
      expected to be material to the Business, (v) neither Parent nor Sellers have
      received any written notice of the intention of any other party to terminate
      such Contract (whether as a termination for convenience or for default of
      Sellers or Parent thereunder), and (vi) neither Parent or Sellers have failed
      to
      perform or deliver under such Contract, which failure of performance or delivery
      has caused or is reasonably expected to cause a cancellation, material
      modification or any penalty, right of setoff or other material charge by the
      other parties thereto. Sellers have delivered to Purchaser true, correct and
      complete copies of all Contracts set forth on Schedule
      3.14(a) .




(c)  Except
      as
      would not be expected to have a Material Adverse Effect, with respect to
      Contracts that are not required to be listed on Schedule
      3.9 or Schedule
      3.14(a) ,
      (i)
      such Contracts are valid, binding and enforceable in accordance with their
      terms
      against Parent and Sellers, as applicable, (ii) to the Knowledge of Parent
      and
      Sellers, such Contracts are valid, binding and enforceable in accordance with
      their terms against the other parties thereto, (iii) Sellers and Parent are
      not
      (with or without the lapse of time or the giving of notice, or both) in breach
      or default of such Contract, (iv) to the Knowledge of Parent and Sellers, none
      of the other parties to such Contracts are in breach or default thereof, (v)
      neither Parent nor Sellers have received any written notice of the intention
      of
      any other parties to terminate such Contracts (whether as a termination for
      convenience or for default of Sellers or Parent thereunder), and (vi) neither
      Parent or Sellers have failed to perform or deliver under such Contracts, which
      failure of performance or delivery has caused or is reasonably expected to
      cause
      a cancellation, modification or any penalty, right of setoff or other charge
      by
      the other parties thereto.





SECTION
      3.15 Sufficiency
      of Acquired Assets .
      Assuming the continued purchase by Purchaser after the Closing of inventory
      in
      the ordinary course of the Business, the Acquired Assets, together with the
      services to be provided under the Transition Services Agreement or listed on Schedule 3.15 ,
      include
      all of the properties, assets and rights that are used in, or are necessary
      to
      carry on the Business as currently conducted in all material
      respects.




SECTION
      3.16 Environmental
      Matters .
      Except
      as disclosed on Schedule
      3.16 ,
      with
      respect to the Acquired Assets and the Business:




18


(a)  Sellers,
      the Acquired Assets and the Business are in material compliance with all
      Environmental Laws;




(b)  there
      is
      no claim, action, suit, complaint or legal proceeding pending or, to the
      Knowledge of Parent and Sellers, threatened against Sellers, and neither Parent
      nor Sellers have received during the past twelve months any other written
      notice, by any Person alleging a material violation of, or material liability
      under, any Environmental Law on the part of Sellers, the Acquired Assets or
      the
      Business;




(c)  Neither
      Parent nor Sellers have not entered into any consent order or other similar
      agreement with any Governmental Entity that imposes any material obligations
      on
      Sellers, Parent, the Acquired Assets or the Business under any Environmental
      Law;




(d)  Sellers
      have furnished or made available to Purchaser all material environmental reports
      and other materials and environmental documents relating to the Acquired Assets
      and the Business that are in Sellers’ or Parent’s possession or under its
      reasonable control;




(e)  except
      in
      compliance with applicable Environmental Laws, no portion of the Real Property
      is being used, has been used by any Seller or Parent, or, to Knowledge of Parent
      and Sellers has been used by any other person, entity or organization for the
      purpose of or in any way involving the manufacture, processing, use, generation,
      release, discharge, spilling, emission, dumping, disposal, storage, treatment,
      processing or other handling of Hazardous Materials at, on, under or from the
      Real Property;




(f)  there
      are
      no conditions existing at the Real Property that has resulted in, or which
      with
      the giving of notice or the passage of time or both, could reasonably be
      expected to result in any liability or obligation, arising under Environmental
      Laws, of the Sellers or Parent;




(g)  Sellers,
      the Acquired Assets and the Business have all material permits, licenses,
      authorizations and approvals necessary for the conduct of its business and
      operations on, in or at the Real Property which are required under applicable
      Environmental Laws (collectively, the “ Environmental
      Permits ”).
      Sellers, the Acquired Assets and the Business are in material compliance with
      the terms and conditions of all such Environmental Permits;




(h)  the
      execution, delivery and performance of this Agreement and the other transactions
      contemplated hereby will not require any notification, registration, filing,
      reporting, disclosure, investigation, remediation or cleanup obligations
      pursuant to the any requirement of any Governmental Entity or any other
      Environmental Law, including, without limitation, the New Jersey Industrial
      Site
      Recovery Act (N.J.S.A. §§ 13:1L-6 *et
      seq.* )
      and the
      Connecticut Real Property Transfer Act, C.G.S.A. 22a-134 *et
      seq* .
      (the
“ Connecticut
      Transfer Act ”);
      and




(i)  notwithstanding
      anything to the contrary in the foregoing, the Sellers, the Acquired Assets,
      the
      Business and their products are and have been in compliance with all applicable
      requirements under the Toxic Enforcement Act of 1986 (Proposition
      65).




19


SECTION
      3.17 Taxes .
      Except
      as set forth on Schedule
      3.17 :




(a)  There
      are
      no Liens for Taxes (other than Liens for Taxes not yet due and payable) on
      any
      of the Acquired Assets. No deficiencies for Taxes have been claimed, proposed
      or
      assessed with respect to the Business or the Acquired Assets, and there are
      no
      audits, investigations or other administrative or judicial proceedings involving
      Taxes (a “ Tax
      Proceeding ”)
      pending or currently being conducted, or to the Knowledge of Parent and Sellers,
      threatened with respect to the Business or the Acquired Assets.




(b)  All
      income and other material Tax Returns with respect to the Business and the
      Acquired Assets required to be filed on or prior to the date hereof are true
      and
      correct in all material respects and have been timely filed.




(c)  All
      Taxes
      due and owing (whether or not shown on any Tax Return) with respect to the
      Business and the Acquired Assets for all Pre-Closing Tax Periods have been
      paid
      or are being contested in good faith and are adequately reserved for in the
      Financial Statements.




(d)  None
      of
      the Acquired Assets is an interest in an entity treated as a corporation or
      as a
      partnership for tax purposes.




(e)  Schedule
      3.17(e) sets
      forth a list of all jurisdictions to which any Tax is properly payable with
      respect to the Business or the Acquired Assets.




SECTION
      3.18 Labor
      Matters .
      Except
      as set forth on Schedule
      3.18 :




(a)  There
      are
      no strikes or lockouts or material work stoppages or slowdowns pending or,
      to
      the Knowledge of Parent and Sellers, threatened against the
      Business.




(b)  There
      are
      no complaints, charges, claims or grievances against Sellers pending or, to
      the
      Knowledge of Parent and Sellers, threatened to be brought or filed with any
      Governmental Entity, or arbitrator based on or arising out of the employment
      by
      Sellers of any Employee, except for those that would not, individually or in
      the
      aggregate be material to the Business and the Acquired Assets taken as a
      whole.




(c)  Each
      of
      Parent and Sellers is in compliance in all material respects with respect to
      the
      Business with all laws, regulations, rules and orders of all Governmental
      Entities relating to the employment of labor, including all such laws,
      regulations, rules and orders relating to wages, hours, discrimination, civil
      rights, safety and health, immigration, workers’ compensation, layoffs, and the
      collection and payment of withholding Taxes and similar Taxes.




SECTION
      3.19 Brokers;
      Transaction Bonuses .
      Except
      as disclosed on Schedule
      3.19 ,
      no
      broker, finder or investment banker acting on behalf of Sellers or Parent are
      entitled to any fee, commission or other payment from Sellers or Parent in
      connection with this Agreement, the Ancillary Documents or the transactions
      contemplated hereby or thereby. Except as disclosed on Schedule 3.19 ,
      there
      are no special bonuses or other similar compensation payable by Sellers to
      any
      of their directors, officers or employees in connection with the transactions
      contemplated by this Agreement. For purposes of clarification, the parties
      acknowledge and agree that any matter disclosed on Schedule
      3.19 is an
      Excluded Liability.




20




SECTION
      3.20 Employee
      Benefits .





(a)  Schedule
      3.20 contains
      a true and complete list of all material Employee Benefit Plans.





(b)  Each
      of
      the Employee Benefit Plans intended to be “qualified” within the meaning of
      Section 401(a) of the Code has received a favorable determination letter from
      the Internal Revenue Service to the effect that it meets the requirements of
      Section 401(a) of the Code and, to the Knowledge of Parent and Sellers, no
      event
      has occurred, either by reason of any action or failure to act, which could
      reasonably be expected to give rise to disqualification of any such Employee
      Benefit Plan.





SECTION
      3.21 Certain
      Payments .
      None of
      the Sellers, Parent or any member, director, officer, agent, employee, or any
      other person acting on behalf of either Seller or Parent, has, directly or
      indirectly, used any funds for unlawful contributions, gifts, entertainment,
      or
      other unlawful expenses; made any unlawful payment to government officials
      or
      employees or to political parties or campaigns; established or maintained any
      unlawful fund of corporate monies or other assets; made or received any bribe,
      or any unlawful rebate, payoff, influence payment, kickback or other payment;
      or
      made any bribe, kickback, or other payment of a similar or comparable nature
      to
      any Governmental Entity or non-governmental person, regardless of form, whether
      in money, property, or services, to obtain favorable treatment in securing
      business or to obtain special concessions, or to pay for favorable treatment
      for
      business or for special concessions secured.




ARTICLE
      IV


Representations
      and Warranties of Purchaser




Purchaser
      hereby represents and warrants to each of Parent and Sellers as
      follows:




SECTION
      4.1 Organization,
      Standing and Power .
      Purchaser is a corporation duly organized, validly existing and in good standing
      under the laws of its state of incorporation. Purchaser has the requisite
      corporate power and authority to execute and deliver this Agreement and the
      Ancillary Documents to which it is a party, to perform fully its obligations
      under this Agreement and such Ancillary Documents and to consummate the
      transactions contemplated hereby and thereby, and to carry on its business
      as
      currently conducted.




SECTION
      4.2  Authority .
      The
      execution and delivery of this Agreement and the Ancillary Documents to which
      it
      is a party and the consummation of the transactions contemplated hereby and
      thereby have been duly and validly authorized by all necessary corporate action
      on the part of Purchaser, and no other proceedings on the part of Purchaser
      are
      necessary to authorize such execution, delivery and performance. This Agreement
      has been duly and validly executed and delivered by Purchaser and constitutes,
      and the Ancillary Documents, when executed and delivered by Purchaser, shall
      constitute the legal, valid and binding obligation of Purchaser enforceable
      against Purchaser in accordance with their respective terms, except as
      enforceability may be limited by bankruptcy, insolvency or other laws affecting
      the enforcement of creditors’ rights generally, and except that the availability
      of the remedy of specific performance or other equitable relief is subject
      to
      the discretion of the court before which any proceeding therefor may be
      brought.




21




SECTION
      4.3  No
      Conflicts .
      (a) The
      execution and delivery of this Agreement and the Ancillary Documents by
      Purchaser does not, and the consummation by Purchaser of the transactions
      contemplated hereby and thereby and the compliance by Purchaser with the terms
      of this Agreement and the Ancillary Documents will not, conflict with, or result
      in any violation of or default (with or without notice or lapse of time, or
      both) under, or give rise to a right of termination, cancellation or
      acceleration of any obligation or loss of a material benefit under, or result
      in
      the creation of any Lien upon any of Purchaser’s assets under any provision of
      (i) the organizational documents of Purchaser; (ii) subject to the filings
      and
      other matters referred to in the following paragraph (b), any law, judgment,
      order, decree, statute, ordinance, rule or regulation applicable to Purchaser;
      or (iii) any of the terms, conditions, or provisions of any note, lien, bond,
      mortgage, indenture, license, lease, contract, commitment, agreement,
      understanding, restriction or other instrument or obligation, except in the
      case
      of clause (ii) and (iii), any such conflicts, violations, defaults, rights
      or
      Liens that, individually or in the aggregate, would not materially impair the
      ability of Purchaser to perform its obligations under this
      Agreement.




(b)  No
      consent, approval, license, permit, order or authorization of, or registration,
      declaration or filing with, any Governmental Entity is required to be obtained
      or made by Purchaser in connection with the execution and delivery of this
      Agreement or the Ancillary Documents or the consummation of the transactions
      contemplated hereby and thereby, except for (i) compliance with and filings
      under the HSR Act and (ii) those the failure of which to obtain or make,
      individually or in the aggregate, would not materially impair the ability of
      Purchaser to perform its obligations under this Agreement or the Ancillary
      Documents.




SECTION
      4.4 Financial
      Ability .
      Purchaser has received a commitment letter (the “ Commitment
      Letter ”)
      from
      General Electric Capital Corporation (“ GE ”)
      committing GE to provide to Purchaser debt financing for the transactions
      contemplated hereby, subject to the terms and conditions set forth therein.
      Purchaser has delivered to Sellers a true and complete copy of the Commitment
      Letter. As of the date hereof, the Commitment Letter is in full force and effect
      and has not been amended, withdrawn or terminated in any manner and, to
      Purchaser’s Knowledge, Purchaser will be able to satisfy on a timely basis the
      terms and conditions applicable to it in the Commitment Letter. Assuming that
      the loans contemplated by the Commitment Letter are extended, Purchaser will
      be
      solvent immediately following the Closing.




22


SECTION
      4.5 Litigation .
      As of
      the date hereof, there is no claim, action, suit, proceeding or governmental
      investigation pending or, to the Knowledge of Purchaser, threatened against
      Purchaser, by or before any Governmental Entity that would impair the ability
      of
      Purchaser to perform its obligations under this Agreement.




SECTION
      4.6 Brokers .
      Except
      as disclosed on Schedule
      4.6 ,
      no
      broker or investment banker acting on behalf of Purchaser is entitled to any
      fee, commission or other payment from Purchaser in connection with this
      Agreement or the transactions contemplated hereby.




ARTICLE
      V


Covenants




SECTION
      5.1 Conduct
      of Business .
      During
      the period from the date of this Agreement and continuing until the earlier
      of
      the Closing or the termination of this Agreement pursuant to Article VIII,
      Parent and Sellers agree that Sellers shall operate the Business and maintain
      the Acquired Assets in the ordinary course of the operation of the Business
      in
      substantially the same manner as presently maintained and operated and shall
      use
      all commercially reasonable efforts consistent with past practices to preserve
      intact the Business and the Acquired Assets. To the extent that any assets
      that
      would be Acquired Assets if owned by Sellers are owned by an affiliate of
      Sellers, Sellers shall cause such assets to be transferred to Sellers prior
      to
      the Closing.




Without
      limiting the generality of the foregoing, from the date hereof until the Closing
      Date, with respect to the Business, neither Sellers nor Parent will (and will
      cause their affiliates not to), without the consent of Purchaser, which consent
      shall not be unreasonably withheld:




(a)  sell,
      lease or otherwise dispose of any of the Acquired Assets other than sales of
      Inventory in the ordinary course of business;




(b)  enter
      into any material contract, agreement or other commitment giving any person
      an
      option, rights of first offer or other similar rights with respect to any of
      the
      Acquired Assets (other than customary layaway arrangements);




(c)  other
      than in the ordinary course of business, consistent with past practice, increase
      or decrease the compensation, including, without limitation, the bonus, benefits
      or rate of pay, for any Employee (except as required by contractual obligations
      existing on the date hereof and scheduled annual salary raises, as reflected
      in
      the financial and other information previously delivered by Sellers to
      Purchaser), or terminate any Employee;




(d)  incur
      or
      commit to incur any liability other than in the ordinary course of
      business;




(e)  other
      than in the ordinary course of business, hire any new employee for the Business,
      except as a replacement for a current employee of the Business;




23


(f)  change
      in
      any material manner the way it accounts for sales or the valuation of Inventory,
      unless required by a change after the date hereof in GAAP;




(g)  change
      in
      any material manner the policies, practices, methods or procedures of the
      Business with respect to gift cards, gift certificates, diamond bonds,
      warranties, jewelry care plans and merchandise returns, credits or
      refunds;




(h)  amend,
      terminate or modify any Lease or Contracts required to be listed on Schedule
      3.9 or Schedule
      3.14(a) ;




(i)  fail
      to
      pay when due any liabilities or obligations under any Contracts or delay or
      postpone the payment of any accounts payable or any other liability with respect
      to the Business, other than in the ordinary course of business consistent with
      past practice;




(j)  fail
      to
      pay when due any Excluded Liabilities relating to the Business;




(k)  fail
      to
      complete capital expenditures in the ordinary course of business or make any
      commitments for capital expenditures that will become Assumed Liabilities of
      more than 105% of the amount provided in the budget as previously provided
      by
      Sellers to Purchaser;




(l)  make
      aggregate commitments for advertising which will become Assumed Liabilities
      in
      excess of 105% of the aggregate advertising commitments set forth on Schedule
      3.11 ;




(m)  grant
      any
      license or sublicense of any rights with respect to the Business IP required
      to
      be set forth on Schedule
      1.2(a)(vii) or Schedule
      1.2(a)(viii) (excluding any implied license that may attach as a result of sales of
      merchandise to customers); or




(n)  enter
      into any agreement, whether oral or written, fixed or contingent, to do any
      of
      the foregoing.




Notwithstanding
      the foregoing, Purchaser and
      Sellers acknowledge that they have agreed to the actions detailed on Schedule 5.1 and (i)
      Opco shall be permitted to enter into Leases (or amendments to Leases)
      consistent with the terms set forth on Schedule 5.1, subject to Purchaser’s
      prior review and approval, such approval not to be unreasonably withheld,
      conditioned or delayed, and (ii) take the other actions described on Schedule
      5.1 with respect to the Leases.




SECTION
      5.2 Access
      to Information .
      Parent
      and Sellers shall afford to Purchaser and its accountants, counsel, lenders,
      financial advisors, consultants and other representatives (collectively, the
      “ Representatives ”)
      reasonable access during normal business hours and upon reasonable prior notice
      during the period prior to the Closing to the properties including the Real
      Property, books, Contracts, commitments and records primarily related to the
      Business and during such period shall furnish promptly to Purchaser and its
      Representatives any information concerning the Business or the Acquired Assets
      as Purchaser may reasonably request; provided , however ,
      that
      neither Parent nor the Sellers nor any of their affiliates is under any
      obligation to disclose to Purchaser or its Representatives (i) any information
      the disclosure of which is restricted by contract or applicable law except
      in
      strict compliance with the applicable contract or law, provided that Parent
      or
      either Seller, as applicable, shall take all reasonable steps, including,
      obtaining any waivers necessary in order to provide such otherwise required
      access or disclosure, (ii) any information as to which the attorney-client
      privilege may be applicable, and (iii) personnel files, workers’ compensation
      files, employee medical files (including employee “protected health information”
(as defined in the HIPPA Standards for Privacy of Individually Identifiable
      Health Information, 45 CFR Part 146)) and other employee books and records
      and
      affirmative action plans and related books and records. Purchaser acknowledges
      that any information being provided to it or its Representatives by Parent
      and
      Sellers or any of their affiliates or Representatives pursuant to or in
      connection with this Agreement is subject to Section 5.7(b) of this Agreement
      and the terms of the Confidentiality Agreement, the terms of which are
      incorporated herein by reference.




24




SECTION
      5.3 Inventory .
      Prior
      to the Closing, Sellers shall maintain a generally consistent inventory mix
      (by
      merchandise category/class and vendor and vendor style classifications) in
      accordance with the ordinary course of business of the Business on a
      year-to-year basis and on a season-to-season basis. Sellers acknowledge and
      agree that the Inventory that will be included in the Inventory Count shall
      not
      include any inventory or merchandise of any business of Parent or Sellers other
      than the Business.




SECTION
      5.4 Third
      Party Consents .




(a)  Sellers
      and Parent shall use commercially reasonable efforts to obtain all Third Party
      novations, consents, approvals or waivers, including consents for all the
      Leases, prior to the Closing and, once obtained, provide the other parties
      hereto with copies thereof. Sellers shall submit the form previously agreed
      with
      Purchaser when soliciting the Required Consents for the Leases. If any
      novations, consents, approvals or waivers necessary for the assignment,
      assumption, transfer or novation of any Contract or Intellectual Property shall
      not have been obtained on or prior to the Closing Date, then Purchaser and
      Sellers shall use commercially reasonable efforts and cooperate and assist
      one
      another to obtain promptly such novations, consents, approvals or waivers as
      soon as practicable after the Closing, provided, however, that this sentence
      shall not be applicable with respect to any Leases for which a Required Consent
      is not delivered unless Purchaser provides notice to Sellers following the
      Closing Date of its request for assistance and cooperation. Once any novation,
      consent, approval or waiver in respect of such Contract or Intellectual Property
      is obtained, Sellers shall assign, transfer, convey or deliver such Contract
      or
      Intellectual Property to Purchaser at no additional cost.




(b)  Pending
      the receipt of any novations, consents, approvals or waivers pursuant to Section
      5.4(a) and for all other Contracts or Intellectual Property included in the
      Acquired Assets for which a novation, consent, approval or waiver is required
      but not obtained, as of the Effective Time, to the extent permitted by law
      and
      necessary to give effect to the terms hereof and not expressly prohibited by
      the
      terms of any applicable Contracts or evidence of Intellectual Property, this
      Agreement shall constitute full and equitable assignment by Sellers to Purchaser
      of all of their right, title and interest in and to, and assumption by Purchaser
      of all of the respective obligations and liabilities of Sellers, under, such
      Intellectual Property and Contracts, to the extent such liabilities or
      obligations would be, but for the lack of assignment, Assumed Liabilities,
      and,
      in the case of Contracts, Purchaser shall be deemed the agent of Sellers for
      purposes of completing, fulfilling and discharging when due all of the
      liabilities of Sellers under any such Contract to
      the
      extent such liabilities otherwise would be an Assumed Liability .
      The
      parties shall take all actions reasonably necessary to provide Purchaser with
      the benefits of such Intellectual Property and Contracts to the extent included
      in the Acquired Assets, and, in the case of such Contracts, to relieve Sellers
      of the burdens of performance and other obligations thereunder, including entry
      into subcontracts for the performance thereof, to the extent that such
      performance and other obligations would be, but for the lack of assignment,
      Assumed Liabilities. Purchaser agrees to pay, perform and discharge when due
      all
      of Sellers’ obligations and liabilities under such Contracts to the extent such
      liabilities or obligations otherwise would be an Assumed Liability. This
      paragraph shall not be applicable to the Leases unless consented to by Sellers
      and Purchaser in writing.




25




(c)  If
      Sellers, Parent or any of their affiliates shall be unable to make the equitable
      assignment described in Section 5.4(b), or if such attempted assignment
      would give rise to any right of termination or would otherwise adversely affect
      the rights of Sellers, Purchaser or any of their affiliates under such
      Intellectual Property or Contract, or would not assign all of the rights or
      transfer all of the obligations and liabilities of Sellers thereunder (to the
      extent such and obligations would be, but for the lack of assignment, Assumed
      Liabilities) at the Closing, Sellers, Parent and their affiliates shall use
      commercially reasonable efforts to (i) provide to Purchaser, at the request
      of
      Purchaser, the benefits of any such Intellectual Property or Contract to the
      extent included in the Acquired Assets, (ii) cooperate in any lawful
      arrangement designed to provide such benefits to Purchaser, and (iii) enforce,
      at the request of and for the account of Purchaser, any rights of Sellers
      arising from any such Intellectual Property or Contract against any third Person
      (including any Governmental Entity) including the right to elect to terminate
      in
      accordance with the terms thereof upon the advice of Purchaser. To the extent
      that Purchaser is provided the benefits of any Intellectual Property or Contract
      referred to in this Section 5.4 (whether from Sellers or otherwise), Purchaser
      shall, after the Closing Date, perform at the direction of Sellers and for
      the
      benefit of any third Person (including any Governmental Entity) the obligations
      of Sellers thereunder or in connection therewith, and Purchaser agrees to pay,
      perform and discharge when due all of Sellers’ obligations and liabilities under
      such Contracts to the extent such liabilities or obligations otherwise would
      be
      an Assumed Liability. This paragraph shall not be applicable to the Leases
      unless consented to by Sellers and Purchaser in writing.




(d)  In
      connection with obtaining the novations, consents, approvals or waivers
      contemplated by this Section 5.4, Sellers shall not consent to any modification
      of any Contract to the extent included in the Acquired Assets that would
      materially adversely affect the rights of Purchaser under such Contract without
      the prior written consent of Purchaser. This paragraph shall not be applicable
      to the Leases, for which the definition of Required Consents shall be
      applicable.




26


SECTION
      5.5 Expenses .
      Whether
      or not the Closing takes place, and except as otherwise specifically provided
      in
      Section 5.10(b) (with respect to Transfer Taxes), in Section 5.16 (with respect
      to HSR filing fees) and the cost of the preparation of the 2006 Audited
      Financials, the 2007 Audited Financials and the Supplemental Financial
      Information, which shall be shared equally between Purchaser and Sellers, all
      costs and expenses incurred in connection with this Agreement and the
      transactions contemplated hereby shall be paid by the party incurring such
      costs
      or expenses.




SECTION
      5.6 No
      Additional Representations .
      Purchaser acknowledges and agrees that it and its Representatives have had
      access to the books and records, facilities, equipment, Contracts and other
      properties and assets included in or related to the Business and the Acquired
      Assets and Assumed Liabilities. Purchaser also acknowledges that it has
      conducted its own review and analysis of the Business and the Acquired Assets
      and Assumed Liabilities. Purchaser further acknowledges and agrees that neither
      Parent nor the Sellers nor any of their Representatives has made any
      representation or warranty, express or implied, with respect to the Business
      or
      the Acquired Assets or Assumed Liabilities or the accuracy or completeness
      of
      any information regarding the Business, the Acquired Assets or the Assumed
      Liabilities, except as expressly set forth in this Agreement or in the Ancillary
      Documents.




SECTION
      5.7 Certain
      Information .




(a)  After
      the
      Closing, upon reasonable written notice, Purchaser, Parent and Sellers shall
      furnish or cause to be furnished to each other and their respective accountants,
      counsel and other Representatives access, during normal business hours and
      upon
      reasonable prior notice, to such information (including records pertinent to
      the
      Business, the Acquired Assets, the Excluded Assets, the Assumed Liabilities
      or
      the Excluded Liabilities), personnel and properties together with assistance
      relating to the Business, the Acquired Assets, the Excluded Assets, the Assumed
      Liabilities and the Excluded Liabilities as is reasonably necessary for
      verification of calculations delivered by either party pursuant to Section
      5.11,
      financial reporting purposes, the preparation by Sellers and its auditors of
      audited statements for the Business (including for historical periods), the
      preparation and filing of any returns, reports or forms or the defense of,
      or
      response required under, or pursuant to, any lawsuit, action proceeding, audit
      or investigation (including any proceeding involving Sellers or any of their
      affiliates and any litigation related to the Acquired Assets, the Excluded
      Assets, the Assumed Liabilities, the Excluded Liabilities, the Business or
      any
      Employee other than litigation between the parties relating to this Agreement
      or
      the Ancillary Documents). After the Closing, Purchaser and Sellers agree to
      deliver promptly to the other all mail and other documents received by such
      party which relate to any business conducted by such other party or its
      affiliates after the Closing. Purchaser and Sellers shall, and shall cause
      their
      affiliates to, retain after the Closing Date all such records (other than
      retention of tax records) pertinent to the Acquired Assets, the Excluded Assets,
      the Assumed Liabilities and the Excluded Liabilities that are owned by such
      Person immediately after the Closing until the later to occur of (i) the
      expiration of the applicable statute of limitations with respect to the subject
      matter described in such records or (ii) the final resolution of any outstanding
      claim or proceeding with respect to the subject matter described in such
      records. After the end of such period, before disposing of any such records,
      the
      applicable party shall give notice to such effect to the other, and shall give
      the other, at the other’s cost and expense, a reasonable opportunity to remove
      and retain all or any part of such records as the other may select. Cooperation
      with respect to Tax matters shall be governed by Section 5.10.


27




(b)  Notwithstanding
      anything else set forth herein to the contrary, in no event shall Sellers or
      Purchaser, or any of their respective affiliates, be obligated under this
      Agreement to disclose to any other party or parties (i) any information the
      disclosure of which is restricted by contract or applicable law except in strict
      compliance with the applicable contract or law, provided that the parties shall
      take all reasonable steps, including, obtaining any waivers necessary in order
      to provide such otherwise required access or disclosure, (ii) any information
      as
      to which the attorney-client privilege may be applicable, or (iii) any personnel
      files, workers’ compensation files, employee medical files, other employee books
      and records, affirmative action plans or related books and records, except
      as
      provided by law or as required by valid subpoena or court order and then only
      in
      strict compliance with applicable law, subpoena or court order. Purchaser
      acknowledges that any information being provided to it or its Representatives
      by
      Sellers or any of their affiliates or Representatives pursuant to or in
      connection with this Agreement is subject to the terms of the Confidentiality
      Agreement, the terms of which are incorporated herein by reference. If
      privileged and/or attorney work product documents or information, including
      communications between any party hereto or its affiliates and any of their
      respective counsel, are disclosed to any other party pursuant to or in
      connection with this Agreement and the transactions contemplated hereby, then
      Sellers and Purchaser hereby acknowledge and agree that (i) such disclosure
      is
      inadvertent, (ii) such disclosure will not constitute a waiver, in whole or
      in
      part, of any privilege or work product, and (iii) the receiving party will
      promptly return to the disclosing party all copies of such documents or
      information in its possession or in the possession of its affiliates or
      Representatives. Additionally, Sellers and Purchaser agree that they and their
      affiliates shall not waive the attorney-client, work product, or like privilege
      of the other party with respect to any of such documents or information, without
      the other party’s prior written consent.




(c)  Parent
      and Sellers shall use commercially reasonable efforts to deliver to Purchaser
      on
      or prior to the forty-fifth (45 th )
      day
      following the Closing, (i) audited financial statements of the Business for
      the
      fiscal year ended July 31, 2006 prepared in accordance with GAAP, together
      with
      an opinion thereon of Sellers’ independent public accountants, which audited
      financial statements and opinion shall meet all standards required by Regulation
      S-X promulgated under the Exchange Act (the “ 2006
      Audited Financials ”),
      (ii)
      unaudited interim condensed financial statements of the Business including
      notes
      thereto, prepared in accordance with GAAP, for the three-month period from
      August 1, 2007 through October 31, 2007, meeting all standards required by
      Regulation S-X, (iii) unaudited interim condensed financial statements of the
      Business including notes thereto, prepared in accordance with GAAP, for the
      three-month period from August 1, 2006 through October 31, 2006, derived from
      the 2007 Audited Financials, (iv) supplemental income statements of the Business
      for each of the three-month periods during the fiscal year ended July 31, 2007,
      derived from the 2007 Audited Financials and prepared in accordance with GAAP;
      and (iv) supplemental income statements for the six month period from February
      1, 2006 through and July 31, 2006 and the six month period from August 1, 2006
      through January 31, 2007, derived from the 2006 Audited Financials and the
      2007
      Audited Financials, respectively, prepared in accordance with GAAP (the
      financial information in clauses (ii) through (iv) shall be referred to as
      “ Supplemental
      Financial Information ”). ****




28




(d)  No
      later
      than five (5) days prior to Closing, Sellers shall deliver to Purchaser a
      substantially completed draft of the 2007 Audited Financials, including a draft
      opinion.




SECTION
      5.8 Bulk
      Transfer Laws .
      Purchaser hereby waives compliance by Sellers with the provisions of any
      so-called “bulk transfer law” of any jurisdiction in connection with the sale of
      the Acquired Assets to Purchaser.




SECTION
      5.9 Cooperation
      of the Parties; Further Assurances .




(a)  The
      parties shall cooperate with each other and with their respective
      Representatives in connection with any acts or actions required to be taken
      as
      part of or as a condition to their respective obligations under this Agreement
      or any Ancillary Document. Without limiting the foregoing, Sellers shall
      cooperate with, and use commercially reasonable efforts to assist, Purchaser
      in
      connection with the requests that Purchaser may receive from its lenders in
      connection with completing the terms and conditions set forth in the Commitment
      Letter.




(b)  On
      and
      after the Closing Date, Sellers and Purchaser shall use commercially reasonable
      efforts to take, or cause to be taken, all reasonably necessary or appropriate
      actions and do, or cause to be done, all things reasonably necessary or
      appropriate to consummate the transactions contemplated by this Agreement and
      the Ancillary Documents, including the execution of any additional documents
      or
      instruments of any kind (not containing additional representations or
      warranties) which may be reasonably necessary or appropriate to carry out the
      provisions hereof and thereof. In addition, Seller shall pay and discharge
      the
      Excluded Liabilities in the ordinary course of business, consistent with past
      practice.




SECTION
      5.10 Allocation;
      Tax Matters .




(a)  All
      amounts constituting consideration within the meaning of, and for the purposes
      of, Section 1060 of the Code and the regulations thereunder shall be
      allocated among the Acquired Assets and any other rights acquired by Purchaser
      hereunder, as applicable, in **** the
      manner required by Section 1060 of the Code and the regulations thereunder
      and all applicable laws. Within sixty (60) calendar days after the Closing
      Date,
      Sellers shall provide Purchaser with a proposed schedule (the “ Allocation
      Schedule ”)
      allocating all such amounts as provided herein. The Allocation Schedule shall
      become final and binding on the parties hereto forty-five (45) calendar days
      after Sellers provides such schedule to Purchaser, unless Purchaser objects
      in
      writing to Sellers and, orally or in writing, specifies the basis for its
      objections and proposes an alternative allocation. If Purchaser does object,
      Sellers and Purchaser shall in good faith attempt to resolve the dispute within
      fifteen (15) calendar days of written notice to Sellers of Purchaser’s
      objection. Any such resolution shall be final and binding on the parties hereto.
      Any unresolved disputes shall be promptly submitted to an accounting firm
      mutually agreeable to Purchaser and Sellers that is not the current auditor
      of
      either (the “ Reviewing
      Accountants ”)
      for
      determination, with such determination being final and binding on the parties
      hereto. Sellers and Purchaser will each pay one-half of the fees and expenses
      of
      the Reviewing Accountants. Sellers and Purchaser shall cooperate with each
      other
      and the Reviewing Accountants in connection with the matters contemplated by
      this Section 5.10(a), including, without limitation, by furnishing such
      information and access to books, records (including, without limitation,
      accountants work papers), personnel and properties as may be reasonably
      requested. **** Each
      of
      the parties hereto agrees to (i) prepare and timely file all Tax Returns,
      including, without limitation, Form 8594 (and all supplements thereto) in a
      manner consistent with the Allocation Schedule as finalized and (ii) act in
      accordance with the Allocation Schedule for all Tax purposes. The parties hereto
      will revise the Allocation Schedule to the extent necessary to reflect any
      post-Closing payment made pursuant to or in connection with this Agreement.
      In
      the case of any payment referred to in the preceding sentence, Sellers shall
      propose a revised Allocation Schedule, and the parties hereto shall follow
      the
      procedures outlined above with respect to review, dispute and resolution in
      respect of such revision.




29




(b)  Purchaser
      on the one hand and Sellers on the other hand shall share equally and each
      shall
      bear one-half of all transfer, documentary, sales, use, registration, stamp,
      value-added and other similar Taxes (including all applicable real estate
      transfer Taxes and real property gains Taxes and sales Taxes on vehicles),
      including any penalties, fees, interest and additions to Tax, incurred in
      connection with the transactions contemplated hereby and any Taxes
      (collectively, “ Transfer
      Taxes ”)
      as
      well as all out-of-pocket costs associated with the preparation and filing
      of
      the Tax Returns under this Section 5.10(b). If either party pays a liability
      for
      Transfer Taxes, then the paying party may request the non-paying party to
      reimburse it for fifty percent of such liability and the non-paying party shall
      reimburse the paying party within five (5) days of the paying party’s written
      request. Sellers and Purchaser shall cooperate in timely making and filing
      all
      Tax Returns as may be required to comply with the provisions of any Transfer
      Tax
      laws and in making arrangements that lawfully minimize Transfer Taxes without
      increasing other Taxes above the amount that would otherwise be payable in
      the
      absence of such arrangements. To the extent legally able to do so, Purchaser
      shall deliver to Sellers exemption certificates satisfactory in form and
      substance to Sellers with respect to Transfer Taxes if such delivery would
      reduce the amount of Transfer Taxes that would otherwise be
      imposed.





(c)  At
      the
      Closing, each Seller shall deliver to Purchaser a certification from such Seller
      in accordance with United States Treasury Regulation Section 1.1445-2(b)(2)(i)
      and in the form provided in United States Treasury Regulation Section
      1.1445-2(b)(2)(iv)(B) (the “ FIRPTA
      Certificate ”).




(d)  Sellers
      and Purchaser shall each provide the other with such assistance as may be
      reasonably requested (including making employees reasonably available to provide
      information or testimony, at no cost to the other party, except out-of-pocket
      costs) in connection with the preparation and filing of any Tax Return or the
      determination of liability for Taxes with respect to the Acquired Assets.
      Sellers and Purchaser each shall retain until seven years after the Closing
      Date
      all Tax Returns, schedules, work papers, accounting records and other records
      that are owned by such Person immediately after the Closing Date and that relate
      to the Acquired Assets and representatives of each party will, upon reasonable
      notice, have access to such Tax records during normal business hours to examine,
      inspect and copy them. At the end of the seven year period after the Closing
      Date but prior to disposal, each party will inform the other of its intent
      to
      dispose of any such Tax records and will provide the other party with a
      reasonable opportunity to obtain such Tax records as they deem
      appropriate.




30




(e)  If
      any
      Tax authority informs Purchaser or any of its affiliates of any notice of a
      proposed audit, claim, assessment or other dispute concerning Taxes relating
      to
      a Pre-Closing Tax Period, the party so informed shall promptly notify Sellers
      of
      such matter. If Sellers or any of their affiliates are informed of any audit,
      claim, assessment or other dispute concerning Non-Income Taxes relating to
      the
      operation of the Business or the Acquired Assets during any Pre-Closing Tax
      Period, the party so informed shall promptly notify Purchaser of such matter.
      Such notice shall be accompanied by copies of any notice or other documents
      received from any Tax authority with respect to such matter. Sellers shall
      have
      the right to control any Tax Proceedings relating to any Pre-Closing Tax
      Periods, including any settlements thereof, provided that, prior to asserting
      control over such Tax Proceeding, Sellers have acknowledged in writing their
      indemnification obligation under Article X with respect to all Taxes and related
      expenses arising from such Tax Proceedings. Any Tax Proceeding involving Pre-
      and Post-Closing Tax Periods and relating to Non-Income Taxes shall be jointly
      controlled by Sellers and Purchaser. Purchaser shall not settle any liability
      for Taxes related to Pre-Closing Tax Periods for which Sellers have an
      indemnification obligation and have previously provided the written
      acknowledgement of their indemnification obligation described above without
      the
      prior written consent of Sellers.




SECTION
      5.11 Proration
      of Certain Assets and Liabilities .




(a)  The
      following assets and liabilities of the Business shall be prorated on a per
      diem
      basis and apportioned between Sellers, on the one hand, and Purchaser, on the
      other, as of the Effective Time: any current prepaid expenses (but excluding
      any
      items covered by Section 5.20), advertising, utility charges (including
      telecommunication charges), rent, water and sewer fees, license and permit
      fees
      (but only to the extent such license or permit is an Acquired Asset),
      maintenance contracts (which become Acquired Assets), and similar charges
      imposed with respect to the Acquired Assets (collectively, with Property Taxes
      apportioned pursuant to Section 5.11(b), the “ Prorated
      Assets and Liabilities ”).
      Sellers shall be liable for (and shall promptly reimburse Purchaser to the
      extent Purchaser shall have paid) that portion of the Prorated Assets and
      Liabilities relating to, or arising in respect of, days ending prior to the
      Effective Time, and Purchaser shall be liable for (and shall promptly reimburse
      Sellers to the extent Sellers shall have paid) that portion of the Prorated
      Assets and Liabilities relating to, or arising in respect of, all periods on
      and
      after the Effective Time. With respect to the pro ration of percentage rent
      due
      under a Lease, the pro ration shall be based upon the overall sales during
      the
      Lease year relative to sales during the Lease year that occurred prior to the
      Effective Time (which shall be for the account of Sellers) and sales during
      the
      Lease year that occurred on or subsequent to the Effective Time (which shall
      be
      for the account of the Purchaser).




31




(b)  Property
      Taxes with respect to the operation of the Business and the Acquired Assets
      relating to the Straddle Period shall be apportioned in the following manner:
      The amount of Property Taxes allocated to the Pre-Closing Tax Period included
      in
      the Straddle Period shall be equal to the total amount of such Property Taxes
      for the Straddle Period multiplied by a fraction, the numerator of which is
      the
      number of days in the Pre-Closing Tax Period included in the Straddle Period
      and
      the denominator of which is the total number of days in the Straddle Period.
      The
      amount of Property Taxes attributable to the Post-Closing Tax Period included
      in
      the Straddle Period shall be equal to the total amount of Property Taxes for
      the
      Straddle Period less the amount of Property Taxes attributable to the
      Pre-Closing Tax Period included in the Straddle Period.




(c)  Following
      the Closing, Purchaser shall reimburse Sellers for any deposits exclusively
      related to the Real Property and for which Purchaser will continue to receive
      a
      benefit following the Closing. If requested by Purchaser, Sellers shall provide
      Purchaser with documentation to substantiate the reimbursement request prior
      to
      payment being due.




SECTION
      5.12 Supplemental
      Disclosure .
      From
      time to time prior to the Closing Date, Sellers shall have the right to
      supplement or amend (by written notice to Purchaser) the Schedules to Article
      III of this Agreement (provided Sellers shall not have such right with regard
      to Schedule  3.14 ,
      except
      to the extent such supplement or amendment pertains to any Permits or contracts
      entered into after the date hereof) with respect to any matter that first arises
      after the date hereof in the ordinary course of business which, if existing,
      occurring or known at the date of this Agreement, would have been required
      to be
      set forth or described in the Schedules or which is necessary to correct any
      information in the Schedules which has been rendered materially inaccurate
      thereby. For the purpose of determining satisfaction of the conditions set
      forth
      in Section 8.2(a), no supplement or amendment to the Schedules shall eliminate
      Purchaser’s right, if any, to terminate this Agreement based upon any inaccuracy
      or breach of representation or warranty. After the Closing, the Schedules shall
      be deemed for the purposes of Article IX hereof, to include and reflect such
      supplements and amendments made in accordance with this Section 5.12 prior
      to
      the Closing Date.




SECTION
      5.13 Parent
      Trademarks .
      It is
      expressly agreed that Purchaser is not acquiring any right, title or interest
      in
      trademarks, service marks, logos, trade names or Internet protocol addresses
      or
      Internet domain names of Parent or its affiliates (other than as provided in
      Section 1.2(a)) or in any trademark, service mark logo, trade name, or Internet
      domain name or Internet protocol address incorporating the words Zale, Zales,
      Gordons, Peoples, Piercing Pagoda and Mappins, Parent’s corporate signature or
      logo, or any part, variation or derivative thereof (collectively, “ Parent
      Trademarks ”).
      As
      promptly as practicable, but in no event later than ninety (90) days following
      the Closing Date, Purchaser shall use commercially reasonable efforts to remove,
      strike over or otherwise obliterate, at its own cost, all Parent Trademarks
      from
      all items and materials constituting or included in the Acquired Assets or
      otherwise owned or held by Purchaser, including any facility signs, equipment,
      vehicles, Internet sites, business cards, schedules, purchase orders, invoices,
      stationery, displays, signs, promotional materials, manuals, forms and other
      materials, if such items and materials are routinely visible to, or distributed
      or made available or proposed to be distributed or made available to, third
      parties or the public, and Purchaser shall use commercially reasonable efforts
      to cease using invoices, purchase orders, stationery and business cards
      containing Parent Trademarks no later than one hundred eighty (180) days after
      the Closing Date. Nothing contained herein shall require or be construed to
      require Purchaser to cause customers of the Business to take any action with
      respect to property in the possession of any such customers. Notwithstanding
      the
      foregoing, neither Purchaser nor any of its affiliates shall, from and after
      the
      Closing Date, except as otherwise expressly agreed in writing by Parent or
      as
      provided in the Transition Services Agreement or in this Section 5.13 with
      respect to Purchaser’s use of such invoices, purchase orders, stationery and
      business cards containing Parent Trademarks, make any direct or indirect use
      of
      any Parent Trademarks or make any reference to Parent or its affiliates in
      any
      advertisements, of Purchaser or any of its affiliates.




32




SECTION
      5.14 Insurance .
      Purchaser acknowledges and agrees that effective upon the Closing, all insurance
      policies carried by or for the benefit of Parent and Sellers or any of their
      affiliates with respect to the Acquired Assets and the operation, activities
      and
      liabilities of the Business (the “ Seller
      Insurance Policies ”)
      may be
      terminated or modified by Parent or Sellers or deemed by the language of such
      policies to exclude coverage of the Acquired Assets and the activities,
      liabilities and operations of the Business, and Purchaser shall, on or before
      the Closing, obtain at its sole cost and expense replacement insurance coverage
      for the Acquired Assets and the activities, operations and liabilities of the
      Business from and after the Effective Time, provided, however, if any Acquired
      Asset is not actually transferred to Purchaser on the Closing Date, but Sellers
      are providing the Purchaser with the benefits of such Acquired Asset pursuant
      to
      Section 5.4, Sellers shall continue to insure such asset on the Sellers’
insurance policies (at Purchaser’s cost) on terms not less favorable than those
      in effect on the date hereof until such time as the Acquired Asset is
      transferred to Purchaser. Following the Closing, the parties shall cooperate
      (at
      their own respective cost and expense) in submitting any claims under any of
      the
      Seller Insurance Policies arising out of occurrences prior to the Closing.
      Purchaser acknowledges that Sellers shall not have any responsibility for
      obtaining or maintaining any insurance or bearing any liability with respect
      to
      the Acquired Assets or the operations, liabilities or activities of the Business
      relating to or directly or indirectly arising out of events occurring subsequent
      to the Closing. Notwithstanding any of the provisions of this Section 5.14,
      Purchaser shall have no right to make any claim directly against Parent or
      Sellers, except as otherwise expressly set forth in this Agreement, or against
      any insurance carrier under any of the Seller Insurance Policies for any claim,
      loss, liability, lien, damage or expense applicable to the Acquired Assets
      or
      the activities, liabilities or operations of the Business.




33


SECTION
      5.15 Guarantees
      of Parent and Sellers .
      The
      parties shall cooperate and use their respective commercially reasonable efforts
      to release any and all guarantees and letters of credit of Parent or Sellers
      or
      any of their affiliates in respect of the Assumed Liabilities or the Acquired
      Assets (collectively, the “ Seller
      Guarantees ”), provided , however ,
      any
      obligation of Sellers or any of their affiliates under the Leases shall not
      be
      included within the term Seller Guarantees. Purchaser shall use commercially
      reasonable efforts to execute any substitute guarantees and make any other
      arrangements on the part of Purchaser or its affiliates reasonably necessary
      to
      obtain the release of any such Seller Guarantees. If the parties are unable
      to
      cause any of the Seller Guarantees to be released prior to the Closing,
      Purchaser shall indemnify and hold harmless Parent and Sellers and their
      affiliates from and against any and all amounts becoming payable under or with
      respect to any such Seller Guarantees following the Closing as a result of
      actions or events occurring after the Closing. In addition, Purchaser shall
      not
      extend, renew or amend any Lease in any manner that would increase or extend
      the
      liability of either Seller thereunder without obtaining the full release of
      Sellers from any increased or extended liabilities under such Lease, and
      Purchaser shall give notice to Sellers of each such release. Following the
      Closing, Purchaser shall give Sellers prior written notice of any such proposed
      extensions, renewals or amendments and shall promptly provide copies of any
      written notice of a default or similar event pertaining to the Leases received
      by Purchaser.




SECTION
      5.16 Governmental
      Approval .
      If a
      filing is required pursuant to the HSR Act, each of Purchaser and Parent shall
      as promptly as practicable, but in no event later than fifteen Business Days
      following the execution and delivery of this Agreement, file with the United
      States Federal Trade Commission and the United States Department of Justice,
      the
      notification and report form under the HSR Act required for the transactions
      contemplated hereby and any supplemental information requested in connection
      therewith pursuant to the HSR Act. Each party will bear its own costs for the
      preparation of any such filing and responding to any inquiries or information
      requests, and Purchaser and Parent shall each be responsible for the payment
      of
      one half of any applicable filing fees. Each of Purchaser and Parent shall
      use
      commercially reasonable efforts to promptly comply with any other laws of any
      country which are applicable to any of the transactions contemplated hereby
      and
      pursuant to which any consent, approval, order or authorization of, or
      registration, declaration or filing with, any Governmental Entity or any other
      Person in connection with such transactions is necessary. Each of Purchaser
      and
      Parent shall furnish to the other such necessary information and reasonable
      assistance as the other may request in connection with its preparation of any
      filing, registration or declaration which is necessary under the HSR Act or
      any
      other such laws. Purchaser and Parent shall keep each other reasonably apprised
      of the status of any communications with, and any inquiries or requests for
      additional information from, any Governmental Entity, and shall use commercially
      reasonable efforts to comply promptly with any such inquiry or request.
      Purchaser and Parent shall use all commercially reasonable efforts to obtain
      any
      clearance under the HSR Act or any other consent, approval, order or
      authorization of any Governmental Entity necessary in connection with the
      transactions contemplated hereby or to resolve any objections which may be
      asserted by any Governmental Entity with respect to the transactions
      contemplated hereby, provided that no party hereto shall be required to execute
      any agreements or submit to judicial or administrative orders to hold separate
      and/or divest any of its assets or businesses or the businesses or assets of
      any
      of their respective subsidiaries.




34




SECTION
      5.17 Commitment
      Letter .
      Purchaser shall use its commercially reasonable efforts to complete the
      transactions contemplated by the Commitment Letter in accordance with the terms
      of the Commitment Letter (including obtaining rating agency approvals,
      maintaining in effect the Commitment Letter, satisfying on a timely basis all
      conditions applicable to Purchaser to obtaining the financing contemplated
      by
      the Commitment Letter, negotiating definitive agreements with respect thereto
      on
      terms and conditions contained therein, satisfying all conditions applicable
      to
      Purchaser in such definitive agreements that are within its control and, if
      necessary, borrowing pursuant to the Commitment Letter in the event the “flex”
provisions are exercised), with such changes as Purchaser may desire, in order
      to have available to it the Purchase Price, the reasonably expected Inventory
      true-up payment contemplated by Section 2.3 and other transaction costs at
      or
      prior to the Closing; provided , however ,
      that in
      no event will Purchaser make any changes that reasonably would be expected
      to
      have a material adverse effect on the solvency of the Purchaser upon the
      consummation of the transactions contemplated by this Agreement Purchaser shall
      keep Sellers informed on a reasonably current basis in reasonable detail of
      the
      status of its efforts to comply with the terms of, and satisfy the conditions
      contemplated by, the financing contemplated by the Commitment Letter and shall
      not permit any amendment or modification to be made to, or any waiver of any
      provision or remedy under, the Commitment Letter that would have a material
      adverse effect on the ability of Purchaser to consummate the transactions in
      the
      Commitment Letter without obtaining the prior written consent of Sellers (such
      consent not to be unreasonably withheld (or delayed).




SECTION
      5.18 Nonsolicitation .
      With
      respect to any Transferring Employee, for eighteen months following the Closing
      Date, Sellers, Parent and their affiliates shall not, directly or indirectly,
      for their own account or on behalf of any other person, solicit or employ any
      such person at any time during the six months following the end of such person’s
      employment with Purchaser, or induce or attempt to induce any such employee
      to
      leave his or her employment with Purchaser or any of its affiliates after the
      Closing, except if such person responds to a general solicitation.




SECTION
      5.19 Confidential
      Information .
      Following the Closing, Sellers, Parent, and any of their affiliates shall not
      at
      any time use or disclose to any person other than Purchaser any confidential
      or
      proprietary information, knowledge or data relating to the Business or the
      Acquired Assets (including, without limitation, information relating to
      accounts, financial dealings, transactions, trade secrets, intangibles, customer
      lists, pricing lists, processes, plans and proposals), whether or not marked
      or
      otherwise identified as confidential or secret unless such information (i)
      is
      now, or hereafter becomes, through no act or failure to act on the part of
      Sellers, Parent or any of their affiliates in breach of this Agreement,
      generally known or available; (ii) is hereafter furnished to Sellers, Parent
      or
      any of their affiliates by a third party who is not bound by an obligation
      of
      confidentiality with respect to such information; (iii) is the subject of a
      written permission to disclose provided by Purchaser; (iv) is necessary or
      appropriate in making any filing or obtaining any consent or approval required
      for the consummation of the transactions contemplated hereby; or (v) required
      to
      be included in Parent’s SEC filings. If compelled by a requirement of a
      Governmental Entity or by law (including, without limitation, by subpoena or
      court order, but other than pursuant to routine filing requirements) or
      discovery to disclose any confidential information, Sellers, Parent and any
      of
      their affiliates, as applicable, promptly will notify Purchaser in writing
      prior
      to making any disclosure to provide Purchaser a reasonable opportunity to either
      waive any objection to such disclosure or request a remedy from the appropriate
      Governmental Entity. Sellers, Parent and any of their affiliates, as applicable,
      will cooperate with Purchaser, at Purchaser’s expense, in its efforts to obtain
      such a remedy. If Purchaser waives its objections or is unsuccessful in its
      request, Sellers, Parent and any of their affiliates, as applicable, will
      furnish only that portion of the confidential information that is generally
      required.




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SECTION
      5.20 True-ups
      for Gift Cards and Deposits for Special Orders .




(a) Gift
      Cards and Layaways.




(i)  In
      order
      to facilitate the agreement between the parties with respect to Previously
      Issued Gift Cards and Previously Issued Layaways in Section 1.3(d), as soon
      as
      practicable following the Closing, Sellers shall determine the aggregate amount
      of cash received by the Business (“ Cash
      Received ”)
      for
      the Previously Issued Gift Cards and Previously Issued Layaways as then
      reflected in Sellers’ records. Sellers shall notify Purchaser of the Cash
      Received and shall provide Purchaser with an accurate list of each Previously
      Issued Gift Card (including date of issuance and cash amount, except with
      respect to gift cards issued prior to 2003, Sellers need only provide an
      aggregate cash amount, not to exceed $20,000) and each Previously Issued Layaway
      (including amount of cash collected and the merchandise subject to such layaway)
      (such information required to be provided in this sentence, the “ Cash
      Received Statement ”).
      If
      Cash Received exceeds $1,270,000, Sellers shall pay to Purchaser, by wire
      transfer of immediately available funds, the amount of such excess (the
“ Excess
      Amount ”)
      on the
      date of delivery of the Cash Received Statement. Purchaser shall have 30 days
      following the receipt of the Cash Received Statement to notify Sellers of any
      disagreements with such Cash Received Statement, which notice shall contain
      reasonable detail. During such 30-day period, Sellers shall provide Purchaser
      and its Representatives access to such financial and other information as
      required pursuant to Section 5.7 to aid Purchaser in its verification of the
      Cash Received Statement. Failure to notify Sellers of its disagreement with
      the
      calculation within such 30-day period shall be deemed acceptance of the Cash
      Received Statement by Purchaser.




(ii)  In
      the
      event that Purchaser timely notifies Sellers of any disagreement, the parties
      agree that each of them will negotiate in good faith to resolve such
      disagreement. If within thirty (30) days after delivery to Sellers of the
      notification by Purchaser of a disagreement, the parties are unable to resolve
      such disagreement, either the Purchaser, on the one hand, or Sellers, on the
      other hand, shall have the right to submit the determination of such matters
      to
      an independent accountant of national or regional standing reasonably acceptable
      to Purchaser and Sellers (the “ Independent
      Accountant ”),
      whose
      decisions shall be binding on the parties. The cost of the Independent
      Accountant shall be paid by the party whose aggregate estimate of the disputed
      amount or amounts, as the case may be, differs most greatly from the
      determination of the Independent Accountant.




36




(iii)  If
      the
      Cash Received, as finally determined, exceeds $1,270,000, within three (3)
      Business Days after the final determination of the Cash Received, Sellers shall
      pay to Purchaser (x) the shortfall amount, or (y) if Sellers had previously
      paid
      Purchaser the Excess Amount, the difference between the final Cash Received
      amount and the Cash Received amount initially included on the Cash Received
      Statement. If not paid when due, interest shall accrue on the amount at a rate
      equal to the lesser of (a) 12% and (b) the maximum rate permitted by
      law.




(b) Deposits
      for Special Orders.




(i)  Within
      ten (10) days following the Closing, Seller shall (i) determine the
      aggregate amount of cash received by the Business as deposits (the “ Cash
      Deposit Amount ”)
      on all
      special order merchandise that remains undelivered to the Business as of the
      Effective Time and for which Purchaser shall be responsible to pay the vendor
      upon receipt of the merchandise after the Effective Time, (ii) provide
      Purchaser with a schedule of all such special order merchandise, the deposit
      amount related thereto and the cost of such merchandise (the “ Special
      Items Schedule ”)
      and
      (iii) pay to Purchaser the Cash Deposit Amount.





(ii)  Purchaser
      shall have 30 days following the receipt of the Cash Deposit Amount and Special
      Items Schedule to notify Sellers of any disagreements with such Special Items
      Schedule, which notice shall contain reasonable detail. During such 30-day
      period, Sellers shall provide Purchaser and its Representatives access to such
      financial and other information as required pursuant to Section 5.7 to aid
      Purchaser in its verification of the Special Items Schedule. Failure to notify
      Sellers of its disagreement with the calculation within such 30-day period
      shall
      be deemed acceptance of the Cash Deposit Amount and Special Items Schedule
      by
      Purchaser.




(iii)  In
      the
      event that Purchaser timely notifies Sellers of any disagreement, the parties
      agree that each of them will negotiate in good faith to resolve such
      disagreement. If within thirty (30) days after delivery to Sellers of the
      notification by Purchaser of a disagreement, the parties are unable to resolve
      such disagreement, either the Purchaser, on the one hand, or Sellers, on the
      other hand, shall have the right to submit the determination of such matters
      to
      the Independent Accountant, whose decisions shall be binding on the parties.
      The
      cost of the Independent Accountant shall be paid by the party whose aggregate
      estimate of the disputed amount or amounts, as the case may be, differs most
      greatly from the determination of the Independent Accountant.




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(iv)  If
      the
      Cash Deposit Amount, as finally determined, is more than the amount initially
      paid by Sellers to Purchaser, within three (3) Business Days after the final
      determination of the Cash Deposit Amount, Sellers shall pay to Purchaser the
      shortfall. If not paid when due, interest shall accrue on the amount at a rate
      equal to the lesser of (a) 12% and (b) the maximum rate permitted by
      law.




ARTICLE
      VI


Employee s




SECTION
      6.1 General




(a)  As
      of the
      Effective Time, Purchaser agrees to offer to hire all of Sellers’ salaried and
      hourly personnel who are actively employed at the Real Property (whether or
      not
      such employees are on medical, family or other authorized leaves of absence
      and
      set forth on Schedule
      6.1 )
      (the
“ Field
      Employees ”)
      in
      substantially comparable jobs. With respect to Sellers’ employees who are listed
      on Schedule
      6.1 (whether
      or not such employees are on medical, family or other authorized leaves of
      absence and set forth on Schedule
      6.1 )
      (the
“ Scheduled
      Employees ”),
      as of
      the Effective Time, Purchaser shall either offer to hire each such Scheduled
      Employee or shall reimburse Sellers the cost of the severance amount specified
      on Schedule
      6.1 for each
      such Scheduled Employee not receiving an offer, less applicable withholdings.
      The Scheduled Employees together with the Field Employees, are referred to
      herein as the “ Employees .”
      Employees who become employed by Purchaser on or within ninety days after the
      Closing Date are referred to herein as “Transferring Employees.” Subject to the
      provisions of Section 6.2, Purchaser agrees to be responsible for all
      employment-related obligations with respect to Transferring Employees arising
      on
      and after the Effective Time. If any
      Scheduled Employee declines Purchaser’s offer of employment, Purchaser shall
      reimburse Sellers the severance amount specified on Schedule
      6.1 for each
      Scheduled Employee who declines the Purchaser’s offer, less applicable
      withholdings. Payment of such specified severance amount shall represent the
      total amount owed by Purchaser with respect to such Scheduled Employee. If
      any
      Field Employee declines Purchaser’s offer of employment, Purchaser shall have no
      further obligations with respect to such Field Employee for severance or any
      other benefits, and Sellers shall pay to such Field Employee severance in
      accordance with the Sellers’ severance plans, policies or arrangements and
      Sellers shall be responsible for obligations with respect to such Field Employee
      for severance and any other benefits.




(b)  On
      the
      Effective Time or as soon as administratively feasible thereafter (but in no
      event later than the time required by applicable law), Seller shall pay to
      any
      Employee all amounts earned or accrued as of the Effective Time, including,
      but
      not limited to salary, commissions, paid time off and vacation
      pay.


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(c)  Subject
      to Section 6.1(a), Purchaser understands and acknowledges that Parent and
      Sellers are relying on Purchaser’s agreement to hire all Field Employees and
      certain Scheduled Employees as of the Effective Time. In that regard, Purchaser
      shall bear (or Finlay shall cause Purchaser to bear) sole responsibility for
      any
      obligations or liabilities to such Employees under the WARN Act and any other
      law of any other applicable Governmental Entity regarding notice of employment
      termination, and Purchaser agrees (and Finlay agrees to cause Purchaser) to
      indemnify and to hold Parent and Sellers harmless from same. Purchaser’s
      indemnification of Sellers in this regard specifically includes, but is not
      limited to, any claim by such Employee for back pay, front pay, benefits, or
      compensatory or punitive damages, any claim by any Governmental Entity for
      penalties regarding any issue of prior notification (or any lack thereof) of
      any
      plant closing or mass layoff, as well as defense costs, including attorneys’
fees, in defending any such claims, and such indemnification shall continue
      for
      so long as any Employee has a right to seek compensation under the WARN Act
      or
      any other law of any other applicable Governmental Entity. Notwithstanding
      the
      foregoing, Sellers agree that at any time after the execution and delivery
      of
      this Agreement Purchaser shall have the right to provide to the Scheduled
      Employees such notices as may be necessary to comply with the requirements
      of
      the WARN Act or any other law of any other applicable Governmental Entity
      regarding notice of employment termination. Further, Sellers agree to provide
      the names, addresses and other pertinent information with respect to the
      Scheduled Employees as may be necessary to facilitate the delivery of the
      notices described in the foregoing sentence no later than three (3) days
      following the execution and delivery of this Agreement.




SECTION
      6.2  Employee
      Benefits .




(a)   For
      a
      period of no less than twelve months from the Closing Date, Purchaser shall
      provide each Transferring Employee, so long as they remain employed by Purchaser
      during such period, overall benefits and total compensation that, taken
      together, are substantially comparable in the aggregate to the benefits and
      compensation customarily provided by Sellers. Transferring Employees shall
      be
      eligible to participate in any “employee benefit plan” (as defined in Section
      3(3) of ERISA), stock purchase, stock option, severance, fringe benefit, bonus,
      incentive, deferred compensation, and all other employee benefit plans,
      agreements, programs, policies or other arrangements (whether or not subject
      to
      ERISA) maintained by Purchaser (“ Purchaser’s
      Benefit Plans ”)
      for
      its similarly situated employees; provided ,
      that
      nothing herein shall obligate Purchaser to establish or maintain any particular
      form of employee benefit plan or to require it to amend any existing benefit
      plan or policy. Notwithstanding the foregoing, should Purchaser terminate a
      Transferring Employee other than for cause prior to the first anniversary of
      the
      Effective Time, Purchaser shall pay the Transferring Employee severance that
      is
      not less than the severance provided for in Sellers’ severance plan in effect on
      the date hereof. In addition, if Purchaser transfers a Scheduled Employee
      located in the Dallas/Fort Worth Metroplex to a location outside the Dallas/Fort
      Worth Metroplex and the Scheduled Employee declines the transfer, Purchaser
      shall pay the Scheduled Employee severance equal to the amount specified on Schedule
      6.1 .




(b)  Purchaser
      agrees to credit each Transferring Employee, for purposes of Purchaser’s
      vacation and severance policies, for years of service with Parent and Sellers,
      their affiliates and their predecessors, as the case may be, determined
      immediately prior to the Effective Time and to give Transferring Employees
      credit for deductibles and co-pays paid by them during 2007 with respect to
      health and benefit plans.


39


(c)  The
      parties hereto acknowledge and agree that all provisions contained in this
      Section 6.2 are included for the sole benefit of the parties hereto, and that
      nothing in this Agreement, whether express or implied, shall (i) create any
      third party beneficiary or other rights (A) in any other Person, including,
      without limitation, any employees or former employees of Parent, Sellers or
      the
      Business, any participant in any employee benefit plan maintained by Purchaser
      or any of its affiliates, or any dependent or beneficiary thereof, or (B) to
      continued employment with Purchaser or any of its affiliates; or (ii) constitute
      an amendment to any Employee Benefit Plan or any employee benefit plan of
      Purchaser or any of its affiliates.




(d)  As
      soon
      as practicable following the Closing Date, any Transferring Employees who have
      account balances in the Seller 401(k) Plan shall be entitled to receive
      distributions of their account balances and shall be permitted to roll over
      their eligible rollover distributions, as soon as practicable after the Closing
      Date, but in no event later than ninety (90) days after the Closing Date, to
      any
      401(k) plan established or maintained by Purchaser (or an affiliate thereof)
      (the “ Purchaser
      401(k) Plan ”)
      on
      behalf of such Transferring Employees. Such rollover may consist of cash,
      promissory notes evidencing outstanding participant loans (“ Loans ”)
      under
      the Seller 401(k) Plan or any combination thereof. The Seller 401(k) Plan shall
      not place any Transferring Employee’s Loan into default so long as such employee
      transfers his or her account balance under the Seller 401(k) Plan, together
      with
      the Loan, to the Purchaser 401(k) Plan through a direct rollover as soon as
      administratively practicable following the Closing Date. Sellers and Purchaser
      shall cause their respective plans to be amended, as necessary, and to cooperate
      with each other in order to facilitate the implementation of the foregoing
      provisions.




ARTICLE
      VII


Merchandise




SECTION
      7.1 Merchandise
      Returns .
      With
      respect to any merchandise sold at the Real Property prior to the Effective
      Time, Purchaser agrees to follow and adhere to the customary policy of the
      Business regarding merchandise returns, credits and refunds. Parent and Sellers
      shall have no obligation to reimburse Purchaser for any credits or refunds
      given
      by Purchaser with respect to any such returned merchandise, and Purchaser shall
      be entitled to resell such returned merchandise without paying any additional
      consideration therefor to Parent or Sellers. Sellers have delivered to Purchaser
      a true, correct and complete copy of the policies of the Business regarding
      merchandise returns, credits and refunds in effect on the date
      hereof.




SECTION
      7.2 Merchandise
      Repairs .
      At the
      Closing Sellers will deliver to Purchaser all customer property in their
      possession in connection with repairs and will direct the providers of repair
      services to the Business to deliver to Purchaser any customer property in their
      possession. To the extent that Sellers have paid a provider of repair services
      for repairs with respect to such customer property, and the customer has not
      reimbursed Sellers for such amounts, Purchaser shall promptly reimburse Sellers
      for such unreimbursed amounts following Closing.


40




SECTION
      7.3 Merchandise
      Consignments .
      No
      later than ten (10) days prior to the Closing, Sellers shall deliver to
      Purchaser a schedule of the consigned merchandise of the Business. Purchaser
      shall deliver to Sellers a list of the consigned merchandise that it desires
      to
      retain subsequent to the Closing no later than five (5) days prior to the
      Closing. Purchaser shall provide Sellers written confirmation from the vendors
      that, following the Closing, Sellers no longer will be responsible for such
      merchandise or for payment for merchandise due except to the extent sold prior
      to the Effective Time. Sellers will return all other consigned merchandise
      to
      the appropriate owner thereof.




ARTICLE
      VIII


Conditions
      Precedent




SECTION
      8.1 Conditions
      to Each Party’s Obligation .
      The
      obligation of Purchaser to purchase the Acquired Assets and to complete the
      other Purchaser actions contemplated by this Agreement to occur at the Closing,
      and the obligation of Sellers to sell, assign, transfer, convey and deliver
      the
      Acquired Assets to Purchaser and to complete the other Sellers actions
      contemplated by this Agreement to occur at the Closing, shall be subject to
      the
      satisfaction at or prior to the Closing of the following
      conditions:




(a)  Certain
      Waiting Periods .
      (i) Any waiting period under the HSR Act applicable to any of the
      transactions contemplated hereby shall have expired or been earlier terminated,
      and (ii) no antitrust authority shall have required Parent, Sellers or any
      of their affiliates to continue to own any of the Acquired Assets or to have
      required any party hereto to divest, separate or offer for sale any of their
      assets.




(b)  No
      Injunctions or Restraints .
      No
      temporary restraining order, preliminary or permanent injunction or other legal
      restraint or prohibition preventing the consummation of the transactions
      contemplated by this Agreement and/or the Ancillary Documents shall be in
      effect; provided , however ,
      that
      each of Purchaser and Sellers shall have used commercially reasonable efforts
      to
      prevent the entry of any such order, injunction or other restraint or
      prohibition and to appeal as promptly as possible any such order, injunction
      or
      other restraint or prohibition that may be entered.




(c)  Leasehold
      Consents. The
      Sellers shall have obtained and delivered to Purchaser the Required Consents
      no
      later than five (5) Business Days prior to the Closing.




SECTION
      8.2 Conditions
      to Obligation of Purchaser .
      The
      obligation of Purchaser to purchase the Acquired Assets and to complete the
      other actions of Purchaser contemplated by this Agreement to occur at the
      Closing, is subject to the satisfaction at and as of the Closing of each of
      the
      following conditions, any of which may be waived by Purchaser in its sole
      discretion:


41




(a)  Representations
      and Warranties .
      The
      representations and warranties of Parent and Sellers set forth in this Agreement
      shall be true and correct in all material respects (except for such
      representations and warranties that are qualified by their terms by a reference
      to materiality or to Material Adverse Effect, which representations and
      warranties as so qualified shall be true and correct in all respects) as of
      the
      Closing as though such representations and warranties were made on and as of
      the
      Closing, except for those representations and warranties that address matters
      only as of a particular date, which representations and warranties shall be
      true
      and correct in all material respects (except for such representations and
      warranties that are qualified by their terms by a reference to materiality
      or to
      Material Adverse Effect, which representations and warranties as so qualified
      shall be true and correct in all respects) only as of such date, and Purchaser
      shall have received a certificate from Parent and Sellers to such
      effect.




(b)  Performance
      of Obligations of Parent and Sellers .
      Parent
      and Sellers shall have performed or complied in all material respects with
      all
      obligations, conditions and covenants required to be performed or complied
      with
      by them under this Agreement at or prior to the Closing, and Purchaser shall
      have received a certificate from Parent and Sellers to such effect.




(c)  Funds .
      Purchaser shall have obtained an amount equal to the sum of the Purchase Price,
      the reasonable expected Inventory true-up payment contemplated by Section 2.3,
      plus $10.0 million to pay transaction-related expenses in debt financing from
      GE
      in accordance with the Commitment Letter or such other lender, on terms and
      conditions satisfactory to Purchaser in its reasonable discretion.




(d)  2007
      Audited Financial Statements .
      No
      later than one (1) Business Day prior to Closing, Sellers shall have delivered
      to Purchaser audited financial statements of the Business for the fiscal year
      ended July 31, 2007 prepared in accordance with GAAP, together with an opinion
      thereon of Sellers’ independent public accountants, which financial statements
      and opinion shall meet all standards required by Regulation S-X of the Exchange
      Act (the “ 2007
      Audited Financials ”).
      The
      2007 Audited Financials shall be comparable, in all material respects, to the
      2007 Unaudited Financials, taking into account the required GAAP adjustments
      to
      be made to the 2007 Unaudited Financials.





(e)  Flagship
      Store Consents .
      Parent
      and Sellers shall have received and delivered to Purchaser consents for the
      assignment of the Leases listed on Schedule
      8.2(e) ,
      which
      consent shall meet the requirements of the last two sentences of the definition
      of Required Consents.





(f)  Expected
      Delivery of 2006 Audited Financials and Supplemental Financial
      Information .
      Based
      upon discussions with KPMG and/or Sellers, nothing shall have come to
      Purchaser’s attention to cause it to reasonably conclude that the 2006 Audited
      Financials and the Supplemental Financial Information will not be delivered
      as
      contemplated by Section 5.7(c).





SECTION
      8.3 Conditions
      to Obligation of Sellers .
      The
      obligation of Sellers to sell, assign, transfer, convey, and deliver the
      Acquired Assets and to complete the other actions of Sellers and Parent
      contemplated by this Agreement to occur at the Closing, is subject to the
      satisfaction at and as of the Closing of each of the following conditions,
      any
      of which may be waived by Sellers in their sole discretion:


42




(a)  Representations
      and Warranties .
      The
      representations and warranties of Purchaser set forth in this Agreement shall
      be
      true and correct in all material respects (except for such representations
      and
      warranties that are qualified by their terms by a reference to materiality,
      which representations and warranties as so qualified shall be true and correct
      in all respects) as of the Closing as though such representations and warranties
      were made on and as of the Closing, except for those representations and
      warranties that address matters only as of a particular date, which
      representations and warranties shall be true and correct in all material
      respects (except for such representations and warranties that are qualified
      by
      their terms by a reference to materiality, which representations and warranties
      as so qualified shall be true and correct in all respects) only as of such
      date,
      and Sellers shall have received a certificate from Purchaser to such
      effect.




(b)  Performance
      of Obligations of Purchaser .
      Purchaser shall have performed or complied in all material respects with all
      obligations, conditions and covenants required to be performed or complied
      with
      by it under this Agreement at or prior to the Closing, and Sellers shall have
      received a certificate to such effect.




ARTICLE
      IX


Termination,
      Amendment and Waiver




SECTION
      9.1 Termination .




(a)  Notwithstanding
      anything to the contrary in this Agreement, this Agreement may be terminated
      and
      the transactions contemplated hereby abandoned at any time prior to the
      Closing:




(i)  by
      mutual
      written consent of Parent, Sellers and Purchaser;




(ii)  by
      Sellers, if any of the conditions set forth in Sections 8.1(a), 8.1(b) or 8.3(b)
      shall have become incapable of fulfillment by November 16, 2007 or such
      later date as may be mutually agreed by the parties (the “ Closing
      Deadline ”),
      and,
      in the case of Section 8.3(b), shall not have been waived by
      Sellers;




(iii)  by
      Purchaser, if any of the conditions set forth in Sections 8.1 or 8.2(b) shall
      have become incapable of fulfillment by the Closing Deadline, and, in the case
      of Section 8.2(b), shall not have been waived by Purchaser;




(iv)  by
      Sellers, if any of Purchaser’s representations or warranties set forth herein
      shall have become inaccurate as of a date subsequent to the date of this
      Agreement, such that the condition set forth in Section 8.3(a) would not be
      satisfied, and, if such inaccuracy is capable of being cured, Purchaser fails
      to
      cure such inaccuracy within thirty days following written notification thereof
      from Sellers to Purchaser;


43




(v)  by
      Purchaser, if any of Parent’s or Sellers’ representations or warranties set
      forth herein shall have become inaccurate as of a date subsequent to the date
      of
      this Agreement, such that the condition set forth in Section 8.2(a) would not
      be
      satisfied, and, if such inaccuracy is capable of being cured, Parent or Sellers
      fail to cure such inaccuracy within thirty days following written notification
      thereof from Purchaser to Sellers; or




(vi)  by
      Sellers or Purchaser if the Closing shall not have occurred by the Closing
      Deadline;




provided , however ,
      that
      the right to terminate this Agreement pursuant to clause (ii), (iii), (iv),
      (v)
      or (vi) above shall not be available to a party (A) whose failure to fulfill
      an
      obligation, or (B) whose breach of a representation, warranty, covenant or
      agreement set forth in this Agreement, and/or (C) whose delay or non-performance
      shall have been the cause of, or shall have resulted in, the right to terminate
      this Agreement pursuant to this Section 9.1(a).




(b)  In
      the
      event of termination by Sellers or Purchaser pursuant to Section 9.1(a),
      written notice thereof shall promptly be given to the other party and the
      transactions contemplated by this Agreement shall be terminated, without further
      action by any party. If the transactions contemplated by this Agreement are
      terminated as provided herein:




(i)  Upon
      written request from Sellers, Purchaser shall return or destroy all documents
      and other material received from Parent, Sellers or any other Person relating
      to
      the transactions contemplated hereby, whether so obtained before or after the
      execution hereof, to Parent or Sellers; and




(ii)  all
      confidential information received by Purchaser with respect to the Acquired
      Assets, the Business or any other aspect of the business of Sellers shall be
      treated in accordance with the Confidentiality Agreement, which shall remain
      in
      full force and effect notwithstanding the termination of this
      Agreement.




(c)  If
      this
      Agreement is terminated and the transactions contemplated hereby are abandoned
      as described in this Section 9.1, this Agreement shall become null and void
      and
      of no further force and effect, without any further obligation or liability
      of
      Parent, Sellers or Purchaser hereunder (except for any liability of a party
      for
      its breach of this Agreement), except for (i) the provisions of Section 5.2
      relating to the obligation of Purchaser to keep confidential certain information
      and data obtained by it from Sellers, or other Persons, (ii) the provisions
      of this Agreement relating to expenses (including Section 5.5), (iii) the
      provisions of this Section 9.1 and (v) the provisions of Article XI.
      Nothing in this Section 9.1 shall be deemed to release either Purchaser or
      Parent and Sellers from any liability for any breach by such party of the terms
      and provisions of this Agreement or to impair the right of any party to compel
      specific performance by the other party of its obligations under this Agreement.


44




(d)  If
      either
      Purchaser or Sellers terminates this Agreement pursuant to
      Section 9.1(a)(i), 9.1(a)(iii) or 9.1(vi) due to Sellers’ inability to
      satisfy the condition set forth in Section 8.1(c) and all other conditions
      were
      capable of being satisfied at the time, Sellers shall pay to Purchaser an
      aggregate of $1,000,000 on the date of termination.




(e)  If
      Sellers terminate this Agreement pursuant to Section 9.1(a)(i) or 9.1(a)(vi)
      due
      to Purchasers’ inability to satisfy the condition set forth in Section 8.2(c)
      and all other conditions were capable of being satisfied at the time, Purchaser
      shall pay to Sellers an aggregate of $1,000,000 on the date of
      termination.




SECTION
      9.2 Amendments
      and Waivers .
      This
      Agreement may not be amended except by an instrument in writing signed on behalf
      of the parties hereto. By an instrument in writing, Purchaser, on the one hand,
      or Parent and Sellers, on the other, may waive compliance by any other party
      with any term or provision of this Agreement that such other party was or is
      obligated to comply with or perform. No failure or delay of any party in
      exercising any right, power or privilege hereunder shall operate as a waiver
      thereof, nor shall any single or partial exercise thereof constitute a
      continuing waiver or preclude any other or further exercise thereof or the
      exercise of any other right, power or privilege.




ARTICLE
      X


Indemnification




SECTION
      10.1 Indemnification
      by Parent and Sellers .




(a)  Subject
      to all applicable terms and conditions of this Article X, from and after the
      Closing Date, Parent and Sellers, jointly and severally, hereby agree to
      indemnify Purchaser, Finlay and their affiliates and their respective officers,
      directors, employees and Representatives (collectively, the “ Purchaser
      Group ”)
      against, and to hold them harmless from, any loss, liability, Tax, claim, damage
      or reasonable expense (including without limitation reasonable attorneys’ fees’,
      whether or not involving a Third-Party Claim (collectively, “ Losses ”),
      as
      incurred to the extent arising directly or indirectly from, relating to or
      otherwise in respect of:




(i)  any
      failure of any representation or warranty made by Parent or either Seller
      contained in this Agreement to be true and correct; provided , however ,
      that
      (except with respect to the representations and warranties contained in set
      forth in Sections 3.1, 3.2, 3.3, 3.8, the first sentence of 3.12(a), 3.17 and
      3.19), Parent and Sellers shall not have any liability under this Section
      10.1(a)(i) unless and until the aggregate of all Losses relating thereto for
      which Parent or Sellers would, but for this proviso, be liable exceeds on a
      cumulative basis an amount equal to $2,050,000 (the “ Deductible ”),
      at
      which time Parent and Sellers shall only be liable for amounts in excess of
      the
      Deductible; provided , further ,
      that no
      claim for Losses under this Section 10.1(a)(i) (except with respect to Sections
      3.1, 3.2, 3.3, 3.8, the first sentence of 3.12(a), 3.17 and 3.19) may be made,
      and no Losses shall be applied against the Deductible for any claim that (when
      aggregated with a series of substantially related claims) does not cause Losses
      in an amount in excess of $15,000;


45




(ii)  any
      nonfulfillment of, or failure to comply with, any covenant of Parent or either
      Seller set forth in this Agreement;




(iii)  any
      Excluded Liabilities; or




(iv)  any
      fees
      of any Person referred to in Section 3.19 and any other fees, commissions or
      expenses asserted by any other Representative of Parent or Sellers on the basis
      of the transactions contemplated by this Agreement.




(b)  Notwithstanding
      anything else to the contrary contained herein, the liability of Parent and
      Sellers under Section 10.1(a)(i) (except with respect to the representations
      and
      warranties set forth in Sections 3.1, 3.2, 3.3, 3.8, the first sentence of
      3.12(a), 3.17 and 3.19), in the aggregate, shall be limited to and in shall
      no
      event exceed fifteen percent (15%) of the Purchase Price.




(c)  Notwithstanding
      anything to the contrary in this Agreement, for purposes of the indemnification
      provisions in this Section 10.1, the determination of (i) whether any
      representation or warranty has been breached and (ii) the amount of any Losses
      shall be made without giving effect to any “material adverse effect”
qualification or any materiality or similar qualification contained in the
      representations or warranties herein.




(d)  Purchaser
      acknowledges and agrees that its sole and exclusive remedy with respect to
      any
      and all claims (other than claims arising from fraud, intentional
      misrepresentation or willful misconduct on the part of Parent or Sellers in
      connection with the transactions contemplated by this Agreement) for any breach
      of any representation, warranty, covenant or agreement set forth herein (but
      not
      including any claims arising after the Closing under the express terms of any
      Ancillary Documents), shall be pursuant to the indemnification provisions set
      forth in this Article X, provided , however ,
      that
      Purchaser shall be entitled to specific performance or injunctive relief in
      addition to any other remedy at law or in equity to enforce any of the covenants
      contained herein that are to be performed by Parent or Sellers after the Closing
      since monetary damages would be inadequate and Purchaser would have no adequate
      remedy at law. In furtherance of the foregoing, each of Purchaser and Finlay
      hereby waives, on behalf of itself and the members of the Purchaser Group and
      to
      the fullest extent permitted under applicable law, any and all rights, claims
      and causes of action for any breach of any representation, warranty, covenant
      or
      agreement set forth herein it may have against Parent and Sellers and their
      affiliates, and each of their respective officers, directors, employees and
      Representatives arising under or based upon any Federal, state, local or foreign
      statute, law, ordinance, rule or regulation, except pursuant to the
      indemnification provisions set forth in this Article X.




SECTION
      10.2 Indemnification
      by Purchaser and Finlay .




(a)  Subject
      to all applicable terms and conditions of this Article X, from and after the
      Closing Date, Purchaser and Finlay, jointly and severally, hereby agree to
      indemnify each of Parent and Sellers and their affiliates and each of their
      respective officers, directors, employees and Representatives (collectively,
      the
“ Seller
      Group ”)
      against, and agrees to hold them harmless from, any Losses as incurred to the
      extent arising directly or indirectly from, relating to or otherwise in respect
      of:


46




(i)  any
      failure of any representation or warranty made by Purchaser contained in this
      Agreement to be true and correct;




(ii)  any
      nonfulfillment of, or failure to comply with, any covenant of Purchaser set
      forth in this Agreement;




(iii)  any
      Assumed Liabilities;




(iv)  any
      fees
      of any Person referred to in Section 4.6 and any other fees, commissions or
      expenses asserted by any other Representative of Purchaser on the basis of
      the
      transactions contemplated by this Agreement; or




(v)  the
      operation of the Business or the ownership, operation or use of the Acquired
      Assets after the Closing Date.




(b)  Notwithstanding
      anything to the contrary in this Agreement, for purposes of the indemnification
      provisions in this Section 10.2, the determination of (i) whether any
      representation or warranty has been breached and (ii) the amount of any Losses
      shall be made without giving effect to any “material adverse effect”
qualification or any materiality or similar qualification contained in the
      representations or warranties herein.




(c)  Parent
      and Sellers acknowledge and agree that their sole and exclusive remedy with
      respect to any and all claims (other than claims arising from fraud, intentional
      misrepresentation or willful misconduct on the part of Purchaser in connection
      with the transactions contemplated by this Agreement) for any breach of any
      representation, warranty covenant or agreement set forth herein shall be
      pursuant to the indemnification provisions set forth in this Article X, provided , however ,
      that
      Parent and Sellers shall be entitled to specific performance or injunctive
      relief in addition to any other remedy at law or in equity to enforce any of
      the
      covenants contained herein that are to be performed by Purchaser after the
      Closing since monetary damages would be inadequate and Parent and Sellers would
      have no adequate remedy at law. In furtherance of the foregoing, Parent and
      Sellers hereby waive, to the fullest extent permitted under applicable law,
      any
      and all rights, claims and causes of action for any breach of any
      representation, warranty, covenant or agreement set forth herein they may have
      against Purchaser, Finlay and their respective affiliates, and each of their
      respective officers, directors, employees and Representatives arising under
      or
      based upon any Federal, state, local or foreign statute, law, ordinance, rule
      or
      regulation, except pursuant to the indemnification provisions set forth in
      this
      Article X.




SECTION
      10.3 Losses
      Net of Insurance; No Punitive Damages; Etc.




(a)  The
      amount of any Losses (including Environmental Losses) for which indemnification
      is provided under this Article X shall be net of any amounts actually recovered
      by the Indemnified Party under insurance policies with respect to such Losses,
      less (i) the reasonably estimated amount of future increased premiums resulting
      therefrom, (ii) any “retro-premiums” obligation, (iii) any costs incurred in
      connection with such recovery and all deductibles, and (iv) co-payments and
      similar obligations.




47




(b)  Notwithstanding
      anything to the contrary contained herein, no indemnification shall be provided
      for under this Article X in respect of, and the Indemnifying Party shall not
      be
      liable for, any punitive, special, exemplary or similar damages or for lost
      profits, provided , however ,
      that
      the foregoing limitation on lost profits shall not prevent Purchaser from
      recovering a portion of the Purchase Price, the benefit of which Purchaser
      would
      lose as a result of a Loss, provided , further ,
      that
      such limitations shall not apply to Losses arising out of or relating to any
      Third-Party Claim.




(c)  In
      computing the amount of any Losses with respect to a breach of Section 3.4,
      3.18
      or 3.20, any Losses suffered by Purchaser as a result of Purchaser’s
      post-Closing practices shall not be included.




(d)  Parent,
      Sellers and Purchaser agree that any payments made pursuant to this Article
      X
      will be treated by the parties on their Tax Returns as an adjustment to the
      Purchase Price, unless a final determination by a relevant Tax authority with
      respect to Purchaser or any of its affiliates causes any such payment not to
      be
      treated as an adjustment to the Purchase Price for tax purposes.




SECTION
      10.4 Termination
      of Indemnification .
      The
      obligation of Parent and Sellers to indemnify and hold harmless Purchaser and
      Finlay for breaches of Parent’s and Sellers’ representations and warranties
      shall terminate eighteen months after the Closing Date, except that (a) the
      representations and warranties of Parent and Sellers set forth in Sections
      3.1,
      3.2, 3.3, 3.8, the first sentence of 3.12(a) and 3.19 shall survive the Closing
      indefinitely and (b) the representations and warranties of Parent and
      Sellers set forth in Sections 3.16, and 3.17 shall terminate 60 days after
      the
      expiration of the applicable statute of limitations (taking into account any
      waiver, extension or tolling thereof). The obligation of Purchaser and Finlay
      to
      indemnify and hold harmless Parent and Sellers for breaches of Purchaser’s
      representations and warranties shall terminate eighteen months after the Closing
      Date, except that the representations and warranties of Purchaser set forth
      in
      Sections 4.1, 4.2, 4.3 and 4.6 shall survive the Closing indefinitely.
      Notwithstanding the foregoing, the obligation of the Indemnifying Party to
      indemnify and hold harmless an Indemnified Party pursuant to this Article X
      shall not terminate with respect to (x) any item as to which such Indemnified
      Party shall have, before the expiration of the applicable period, previously
      made a claim by delivering a notice pursuant to this Article X to the
      Indemnifying Party or (y) claims made pursuant to Sections 10.1(a)(ii) through
      (iv) or Sections 10.2(a)(ii) through (v).




SECTION
      10.5 Procedures
      Relating to Third-Party Claims .




(a)  In
      the
      event an Indemnified Party receives notice of a Third-Party Claim, such
      Indemnified Party shall promptly give notice, in writing and in reasonable
      detail, to the party required to provide indemnification hereunder (the
“ Indemnifying
      Party ”); provided ,
      that
      failure to give notification shall not affect the indemnification provided
      hereunder except to the extent the Indemnifying Party shall have been prejudiced
      as a result of such failure to promptly notify, provided , further ,
      that
      the Indemnifying Party shall have no liability whatsoever if the failure to
      give
      such notice was intentional or resulted from the Indemnified Party’s gross
      negligence. Thereafter, the Indemnified Party shall deliver to the Indemnifying
      Party, promptly after the Indemnified Party’s receipt thereof, copies of all
      notices and documents (including court papers) received by the Indemnified
      Party
      relating to the Third-Party Claim.




48




(b)  If
      a
      Third-Party Claim is made against an Indemnified Party, the Indemnifying Party
      shall be entitled to participate in the defense thereof and, if it so chooses
      within 20 days after receipt from the Indemnified Party of the notice of such
      Third-Party Claim, to assume the defense thereof, provided that an
      election to assume the defense of such Third-Party Claim shall be deemed to
      be
      an admission that the Indemnifying Party is liable to the Indemnified Party
      in
      respect of all Losses arising or resulting from, or relating to, such
      Third-Party Claim. Except as hereinafter provided, the Indemnifying Party shall
      have the right to defend the Third-Party Claim with counsel selected by the
      Indemnifying Party and reasonably acceptable to the Indemnified Party by
      appropriate proceedings, (unless the nature of the claim creates an ethical
      conflict for the same counsel to defend the Indemnified Party and the
      Indemnifying Party) which proceedings, including settlement proceedings, shall
      be conducted diligently and in good faith by the Indemnifying Party. The
      Indemnifying Party shall be liable for the reasonable fees and expenses of
      counsel employed by the Indemnified Party for any period during which the
      Indemnifying Party does not assume or control the defense thereof including
      in
      the event that the Indemnifying Party failed, or is failing, to vigorously
      prosecute or defend such Third-Party Claim or in the case of the ethical
      conflict discussed in the immediately preceding sentence. If the Indemnifying
      Party elects to assume the defense of a Third-Party Claim and no ethical
      conflict for the counsel exists, the Indemnifying Party shall not be liable
      to
      the Indemnified Party for any further legal expenses subsequently incurred
      by
      the Indemnified Party in connection with the defense thereof. If the
      Indemnifying Party assumes such defense, the Indemnified Party shall have the
      right to participate in the defense thereof and to employ counsel, at its own
      expense, separate from the counsel employed by the Indemnifying Party, it being
      understood that the Indemnifying Party shall control such defense. All the
      parties hereto shall cooperate in the defense of any Third-Party Claim. Such
      cooperation shall include the retention and (upon the request of the party
      controlling the defense of the Third-Party Claim) the provision to the party
      controlling the defense of the Third-Party Claim of records and information
      that
      are reasonably relevant to such Third-Party Claim, and making employees
      (including any employees familiar with such Third-Party Claim) available to
      provide additional information and explanation of any material provided
      hereunder or to serve as a witness. If the Indemnifying Party chooses to defend
      any Third-Party Claim, the Indemnified Party will agree to any settlement,
      compromise or discharge of such Third-Party Claim that the Indemnifying Party
      may recommend and that by its terms (i) obligates the Indemnifying Party to
      pay
      the full amount of the liability in connection with such Third-Party Claim
      (relating to matters that the Indemnified Party is entitled to indemnification
      hereunder); (ii) does not compromise the Indemnified Party’s reputation; (iii)
      does not obligate the Indemnified Party to perform or refrain from performing
      any act under such compromise, settlement or discharge, there is no Lien placed
      on any assets of the Indemnified Party and there is no injunctive or other
      non
      monetary relief; (iv) there is no finding or admission of any violation of
      any
      law, violation or the rights of any person by the Indemnified Party or any
      other
      liability of the Indemnified Party to any person; and (v) the Indemnified Party
      receives, as part of such settlement, compromise or discharge, a complete,
      general and unconditional release in form and substance reasonably satisfactory
      to the Indemnified Party.




49




(c)  If
      the
      Indemnifying Party elects not to assume and defend a Third-Party Claim, then
      the
      Indemnified Party, at the Indemnifying Party’s expense and with the Indemnified
      Party’s own counsel, may defend such matter; provided , however ,
      that
      whether or not the Indemnifying Party shall have assumed the defense of such
      matter, the Indemnified Party shall not admit any liability with respect to,
      or
      settle, compromise or discharge, such Third-Party Claim without the Indemnifying
      Party’s prior written consent, which shall not be unreasonably withheld,
      conditioned or delayed.




SECTION
      10.6 Procedures
      Relating to Non-Third-Party Claims .
      The
      procedures contained in Section 10.5 shall not be read as a limitation on any
      party’s right to seek indemnification hereunder for matters other than
      Third-Party Claims. In order for an Indemnified Party to be entitled to any
      indemnification provided hereunder, the Indemnified Party shall deliver notice
      of its claim, in writing and in reasonable detail specifying the basis of such
      claim, to the Indemnifying Party. The failure by the Indemnified Party to so
      notify the Indemnifying Party shall not relieve the Indemnifying Party from
      any
      liability that it may have to the Indemnified Party, except to the extent that
      the Indemnifying Party shall have been materially prejudiced as a result of
      such
      failure; provided that the
      Indemnifying Party shall have no liability whatsoever if such failure was
      intentional or resulted from the Indemnified Party’s gross negligence. If the
      Indemnifying Party disputes its liability with respect to such claim, the
      Indemnifying Party and the Indemnified Party shall proceed in good faith to
      negotiate a resolution of such dispute and, if not resolved through
      negotiations, such dispute shall be resolved by litigation, arbitration or
      otherwise.




SECTION
      10.7 Acknowledgment .
      The
      indemnities provided for in this Article X shall not be construed as an
      admission or conclusion, express or implied, as to liability or damages in
      respect of the subject matter of such indemnities.




ARTICLE
      XI


General
      Provisions




SECTION
      11.1 Notices .
      All
      notices and other communications hereunder shall be in writing (including
      facsimile or similar writing) and shall be sent, delivered, mailed, addressed
      or
      faxed:




50




(a)
                if to Purchaser
              or
                Finlay, to:
            Finlay
                Fine Jewelry Corporation
              529
                Fifth Avenue
              New
                York, NY 10017
              Fax:
                (212) 867-3326
              Attn:
                Presidentwith
                a copy to:
            Steven
                Kirshenbaum, Esq.
              Proskauer
                Rose LLP
              1585
                Broadway
              New
                York, NY 10036
              Fax:
                (212) 969-2900(b)
                if to Sellers, to:
            Zale
                Corporation
              901
                West Walnut Hill Lane
              Irving,
                TX 75038
              Attn:
                President
              Fax:
                (972) 580-4934with
                a copy to:
            W.
                Brinkley Dickerson, Jr.
              Troutman
                Sanders LLP
              600
                Peachtree Street, N.E., Suite 5200
              Atlanta,
                Georgia 30308-2216
              Fax:
                (404) 962-6743





Each
      such
      notice or other communication shall be given (i) by hand delivery,
      (ii) by a nationally recognized courier service, or (iii) by facsimile,
      receipt confirmed. Each such notice or communication shall be effective
      (w) if delivered by hand or by nationally recognized courier service, when
      delivered at the address specified in this Section 11.1 (or in accordance with
      the latest unrevoked direction from such party), (x) one day after being sent
      by
      reputable overnight express courier, (y) five days after mailing first class
      mail, postage prepaid and (z) if given by facsimile, when such facsimile is
      transmitted to the facsimile number specified in this Section 11.1 (or in
      accordance with the latest unrevoked direction from such party), and
      confirmation is received; provided that, the transmission of all pages is
      complete prior to 5:00 p.m. Central Time on a Business Day, and if complete
      after such time or on a non-Business Day, then such transmission shall be
      effective as of the next succeeding Business Day. Any of the above addresses
      may
      be changed at any time by notice given as provided above; provided , however ,
      that
      any such notice of change of address shall be effective only upon
      receipt.




SECTION
      11.2 Severability .
      If any
      provision of this Agreement (or any portion thereof) or the application of
      any
      such provision (or any portion thereof) to any Person or circumstance shall
      be
      held invalid, illegal or unenforceable in any respect by a court of competent
      jurisdiction, the remainder of this Agreement will continue in full force and
      effect and the application of such provision will be interpreted so as
      reasonably to effect the intent of the parties hereto. The parties will attempt
      to agree in good faith upon a valid, legal and enforceable provision that will
      achieve, to the extent possible, the economic, business and other purposes
      of
      such invalid, illegal or unenforceable provision.




51




SECTION
      11.3 Counterparts .
      This
      Agreement may be executed in two or more counterparts, all of which shall be
      considered one and the same instrument and shall become effective when one
      or
      more counterparts have been signed by each of the parties and delivered
      (including by facsimile or electronic mail) to each other party.




SECTION
      11.4 Entire
      Agreement; No Third Party Beneficiaries .
      This
      Agreement (including the Schedules and Exhibits hereto), the Ancillary Documents
      and the Confidentiality Agreement (a) constitute the entire agreement and
      supersede all prior agreements and understandings, both written and oral, among
      the parties with respect to the subject matter hereof or thereof and (b) are
      not
      intended to confer upon any Person other than the parties identified herein
      (including any Indemnified Party) and their successors and permitted assigns
      any
      rights, benefits or remedies hereunder and no Person shall be a third party
      beneficiary of this Agreement.




SECTION
      11.5 Attachments .
      Every
      Schedule and Exhibit referred to in this Agreement is incorporated into this
      Agreement by reference.




SECTION
      11.6 Governing
      Law .
      This
      Agreement shall be governed by, and construed in accordance with, the laws
      of
      the State of Delaware applicable to contracts made and to be performed entirely
      in the State of Delaware, regardless of the laws that might otherwise govern
      under applicable principles of conflicts of laws.




SECTION
      11.7 Consent
      to Jurisdiction; Waiver of Jury Trial .




(a)  The
      parties hereto irrevocably submit to the exclusive jurisdiction of the United
      States District Court for the State of Delaware, located in Wilmington, New
      Castle County, or if such court does not have jurisdiction, the state court
      for
      the State of Delaware located in Wilmington, New Castle County, for the purposes
      of any suit, action or other proceeding arising out of this Agreement or any
      transaction contemplated hereby. The parties hereto further agree that service
      of any process, summons, notice or document by U.S. registered mail to such
      party’s respective address set forth in Section 11.1 shall be effective service
      of process for any action, suit or proceeding with respect to any matters to
      which it has submitted to jurisdiction as set forth above in the immediately
      preceding sentence. The parties hereto irrevocably and unconditionally waive
      any
      objection to the laying of venue of any action, suit or proceeding arising
      out
      of this Agreement or the transactions contemplated hereby in (a) the United
      States District Court for the State of Delaware located in Wilmington, New
      Castle County, or (b) the state court for the State of Delaware located in
      Wilmington, New Castle County, and hereby further irrevocably and
      unconditionally waive and agree not to plead or claim in any such court that
      any
      such action, suit or proceeding brought in any such court has been brought
      in an
      inconvenient forum.




(b)  Each
      party hereto hereby waives, to the fullest extent permitted by applicable law,
      any right it may have to a trial by jury in respect of any litigation as between
      the parties directly or indirectly arising out of, under or in connection with
      this Agreement, the Ancillary Documents, the transactions contemplated hereby
      or
      thereby or disputes relating hereto. Each party hereto (i) certifies that
      no representative, agent or attorney of the other party has represented,
      expressly or otherwise that such other party would not, in the event of
      litigation, seek to enforce the foregoing waiver and (ii) acknowledges that
      it and the other party have been induced to enter into this Agreement by, among
      other things, the mutual waivers and certifications in this
      Section 11.7.




52




SECTION
      11.8 Publicity .
      From
      the date of this Agreement through the Closing, neither Parent, Sellers nor
      Purchaser shall issue or cause the publication of any press release or other
      public announcement with respect to the transactions contemplated by this
      Agreement without the consent of the other parties hereto, which consent shall
      not be unreasonably withheld, except as such release or announcement may be
      required by law or the rules or regulations of a national securities exchange
      in
      the United States.




SECTION
      11.9 Assignment .
      Neither
      this Agreement nor any of the rights, interests or obligations hereunder
      (including any rights, interests or obligations under Article X) shall be
      assigned by any party hereto without the prior written consent of the other
      parties hereto, provided, however, that Purchaser may assign any or all of
      its
      rights pursuant to this Agreement, including its rights to indemnification,
      to
      any of its lenders as collateral without the prior written consent of the other
      parties hereto. Subject to the preceding sentence, this Agreement will be
      binding upon, inure to the benefit of and be enforceable by the parties and
      their respective successors and assigns.




ARTICLE
      XII


Definitions




SECTION
      12.1 Definitions .
      The
      following terms shall have the respective meanings set forth below throughout
      this Agreement:




“ 2006
      Audited Financials ”
has
      the
      meaning set forth in Section 5.7(c).




“ 2007
      Audited Financials ”
has
      the
      meaning set forth in Section 8.2(d).




“ 2007
      Unaudited Financials ”
has
      the
      meaning set forth in Section 3.5.




“ Accounts
      Receivable ”
has
      the
      meaning set forth in Section 1.2(b)(ii).




“ Acquired
      Assets ”
has
      the
      meaning set forth in Section 1.2(a).




“ Agreement ”
has
      the
      meaning set forth in the preamble.




“ Allocation
      Schedule ”
has
      the
      meaning set forth in Section 5.10(a).




“ Ancillary
      Documents ”
means,
      collectively, the Transition Services Agreement and any
      other
      agreement, certificate, instrument or other document to be executed and
      delivered pursuant hereto, as contemplated hereby or in connection with the
      consummation of the transactions contemplated by this Agreement.




53




“ Assumed
      Liabilities ”
has
      the
      meaning set forth in Section 1.3(a).




“ Business ”
has
      the
      meaning set forth in the recitals.




“ Business
      Day ”
means
      any day other than a Saturday, a Sunday or a day on which banks in New York
      City
      are authorized or obligated by law or executive order to close.




“ Business
      IP ”
has
      the
      meaning set forth in Section 3.12(a).




“ Cash
      Deposit Amount ”
has
      the
      meaning set forth in Section 5.20.




“ Cash
      Received ”
has
      the
      meaning set forth in Section 5.20.




“ Cash
      Received Statement ”
has
      the
      meaning set forth in Section 5.20.




“ Closing ”
has
      the
      meaning set forth in Section 2.1.




“ Closing
      Date ”
has
      the
      meaning set forth in Section 2.1.




“ Closing
      Deadline ”
has
      the
      meaning set forth in Section 9.1(a)(ii).




“ Closing
      Inventory Value ”
means
      the value of the Inventory as determined in accordance with Section
      2.3(a).




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




“ Commitment
      Letter ”
has
      the
      meaning set forth in Section 4.4.




“ Confidentiality
      Agreement ”
means
      that certain confidentiality letter agreement by and between Purchaser and
      Parent, dated April 24, 2007.




“ Connecticut
      Transfer Act ”
has
      the
      meaning set forth in Section 3.16(h).




“ Contracts ”
has
      the
      meaning set forth in Section 1.2(a)(vi).




“ Deductible ”
has
      the
      meaning set forth in Section 10.1(a)(i).




“ Distribution
      Center ”
has
      the
      meaning set forth in Section 1.2(a)(iii).




“ Effective
      Time ”
shall
      mean 12:00 a.m. (New York time) on the day immediately following the Closing
      Date.




“ Employees ”
has
      the
      meaning set forth in Section 6.1(a).




“ Employee
      Benefit Plan ”
means
      (i) each “employee benefit plan” (as defined in Section 3(3) of ERISA); and (ii)
      each other material employee benefit plan, program, arrangement, personnel
      or
      payroll policy, (including vacation time, holiday pay, service awards, moving
      expense reimbursement programs and sick leave) or fringe benefit, severance
      agreement or plan or any medical, hospital, dental, life or disability plan,
      excess benefit plan, bonus, stock option, stock purchase, or other material
      incentive plan (including any equity or equity-based plan), top hat plan or
      deferred compensation plan, change-of-control agreement, employment agreement
      or
      consulting agreement whether or not written, which in the case of each (i)
      and
      (ii), is maintained, sponsored or contributed to (or with respect to which
      any
      obligation to contribute has been undertaken) by the Parent, Sellers or any
      of
      their ERISA Affiliates on behalf of any current or former employee, director
      or
      independent contractor involved in the Business (or any beneficiary or dependent
      thereof).




54




“ Environmental
      Laws ”
means
      any Federal, state, interstate or local statute, law or regulation having the
      force of law and in effect and promulgated as such as of the Closing Date and
      which is applicable to the Acquired Assets, or any order, injunction, judgment,
      decree, ordinance or code, common law (including any judicial or administrative
      interpretations, guidances, directives, policy statements or opinions) or other
      enforceable requirement of any Governmental Entity having jurisdiction over
      the
      Acquired Assets, and relating to the pollution or protection of human health
      and
      safety or the environment, including any of the foregoing related to: (i)
      Remedial Actions; (ii) the reporting, licensing, permitting or investigating
      of
      the emission, discharge, release or threatened release of Hazardous Substances
      into the air, surface water, ground water or land; or (iii) the manufacture,
      release, distribution, use, generation, treatment, storage, disposal, transport
      or handling of Hazardous Substances.





“ Environmental
      Permits ”
has
      the
      meaning set forth in Section 3.16(g).




“ ERISA ”
means
      the Employee Retirement Income Security Act of 1974, as amended.




“ ERISA
      Affiliate ”
means
      any entity (whether or not incorporated) that is treated as a single employer
      together with Sellers under Section 414(b), (c), (m) or (o) of the Code or
      Section 4001 of ERISA.




“ Exchange
      Act ”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.




“ Excluded
      Assets ”
has
      the
      meaning set forth in Section 1.2(b).




“ Excluded
      Liabilities ”
has
      the
      meaning set forth in Section 1.3(b).




“ Exhibits ”
means
      the exhibits listed in the table of contents of this Agreement as attached
      hereto.




“ Field
      Employees ”
has
      the
      meaning set forth in Section 6.1(a).




“ Financial
      Statements ”
has
      the
      meaning set forth in Section 3.5.




55




“ Finlay ”
has
      the
      meaning set forth in the preamble.




“ FIRPTA
      Certificate ”
has
      the
      meaning set forth in Section 5.10(c).




“ GAAP ”
means
      the generally accepted accounting principles of the United States.




“ GE ”
has
      the
      meaning set forth in Section 4.4.




“ Governmental
      Entity ”
means
      any court, administrative agency or commission or other governmental authority
      or instrumentality, domestic or foreign.




“ Hazardous
      Substance ”
means
      any substance or material that is defined or regulated under any Environmental
      Law.




“ HSR
      Act ”
means
      the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
      amended.




“ Income
      Tax ”
means
      any Tax on or determined by reference to net income.




“ Indemnified
      Party ”
means,
      with respect to the Purchaser, the Purchaser or any member of the Purchaser
      Group, and with respect to Parent or Sellers, the Parent, either Seller or
      any
      member of the Seller Group.




“ Indemnifying
      Party ”
has
      the
      meaning set forth in Section 10.5(a).




“ Independent
      Accountant ”
has
      the
      meaning set forth in Section 5.20.




“ Intellectual
      Property ”
means
      patents, trademarks, domain names and copyrights and all registrations and
      applications for the foregoing, licensed rights, software, inventions, trade
      secrets, know-how, rights of privacy and publicity and all other intellectual
      property and similar rights throughout the world, and all goodwill associated
      with the foregoing.




“ Intercompany
      Accounts ”
means
      intercompany payables, receivables, accounts, indebtedness and other liabilities
      between Parent and Sellers or their affiliates, on the one hand, and the
      Business, on the other hand.




“ Inventory ”
has
      the
      meaning set forth in Section 1.2(a)(iii).




“ Inventory
      Company ”
has
      the
      meaning set forth in the preamble.




“ Inventory
      Count ”
has
      the
      meaning set forth in Section 2.3(a).




“ Knowledge ”
means,
      with respect to Parent and Sellers, the actual (as opposed to constructive,
      implied or imputed) knowledge, without duty of inquiry or investigation, of
      the
      Persons listed on Schedule
      12.1(a) ,
      and,
      with respect to Purchaser, the actual (as opposed to constructive, implied
      or
      imputed) knowledge, without duty of inquiry or investigation, of the Persons
      listed on Schedule
      12.1(b) .




56




“ Leases ”
has
      the
      meaning set forth in Section 3.9.




“ Lien ”
means
      mortgages, liens, security interests, easements, rights of way, pledges,
      restrictions or encumbrances of any nature whatsoever.




“ Loans ”
has
      the
      meaning set forth in Section 6.2(d)




“ Losses ”
has
      the
      meaning set forth in Section 10.1(a).




“ Material
      Adverse Effect ”
means
      any event, occurrence, fact, condition, development, change or effect that,
      individually or in the aggregate with similar events (within the context of
      the
      applicable reference to Material Adverse Effect), occurrences, facts,
      conditions, developments, changes or effects, has or could reasonably be
      expected to have a material and adverse effect on the business, assets,
      properties, operations, financial condition or results of operations of the
      Business taken as a whole; provided , however ,
      that
      the following shall not be taken into account in determining whether there
      has
      been or would be a “Material Adverse Effect”: (i) any adverse changes or
      developments resulting from conditions affecting the United States or any
      foreign economy generally; (ii) any adverse changes or developments that are
      primarily caused by conditions affecting the jewelry industry generally; (iii)
      the failure by the Business to meet its internal revenue or earnings predictions
      or expectations or otherwise for any period ending or for which earnings are
      released on or after the date of this Agreement (provided that the facts, events
      or circumstances underlying such failure shall not be excluded when determining
      a Material Adverse Effect); (iv) any adverse changes or developments in the
      laws, regulations, rules or orders of any Governmental Entity; (v) any adverse
      changes or developments that are attributable to seasonal fluctuations in the
      industry in which the Business operates; (vi) any acts of war,
      insurrection, sabotage or terrorism; and (vii) any adverse changes or
      developments arising primarily out of, or resulting primarily from, actions
      taken by any party in connection with (but not in breach of) this Agreement
      or
      the Ancillary Agreements and the transactions contemplated hereunder and
      thereunder or which are primarily attributable to the announcement of this
      Agreement and the transactions contemplated hereby or the identity of Purchaser
      (including, any litigation, employee attrition, any loss or postponement of
      business resulting from the termination or modification of any vendor, customer
      or other business relationships, any delay of customer orders or otherwise,
      as
      well as any corresponding change in the margins, profitability or financial
      condition of such party, but specifically excluding the failure to obtain any
      required consents of any Governmental Entities or other third parties, including
      with respect to the HSR Act); provided that in the case of (i), (ii), (iii),
      (iv), (v) and (vi), only to the extent that such events, occurrences, facts,
      conditions, developments, changes or effects do not disproportionately affect
      the Business relative to other members of the jewelry industry.




“ Non-Income
      Taxes ”
means
      any Tax other than an Income Tax.




“ Opco ”
has
      the
      meaning set forth in the preamble.




“ Parent ”
has
      the
      meaning set forth in the preamble.




57




“ Parent
      Trademarks ”
has
      the
      meaning set forth in Section 5.13.




“ Permits ”
has
      the
      meaning set forth in Section 1.2(a)(xiii).




“ Permitted
      Liens ”
means
      (i) Liens disclosed on Schedule
      3.8 ,
      (ii)
      mechanics’, carriers’, workmen’s, repairmen’s and other like Liens arising or
      incurred in the ordinary course of business that are not in the aggregate
      material to the Business, and (iii) Liens arising under conditional sales
      contracts or as purchase money security interests for the purchase or lease
      of
      personal property. Notwithstanding the foregoing, at the Effective Time,
      Permitted Liens shall only include (ii) and (iii) of this definition to the
      extent that they relate to an Assumed Liability under Section 1.3(a)(ii) or
      Section 1.3(a)(iii).




“ Person ”
means
      any individual, corporation, partnership, limited partnership, limited liability
      company, joint venture, trust, business association or other entity, including
      any Governmental Entity.




“ Personal
      Property ”
has
      the
      meaning set forth in Section 1.2(a)(ii).




“ Petty
      Cash ”
has
      the
      meaning set forth in Section 1.2(a)(xi).




“ Post-Closing
      Tax Periods ”
means
      taxable periods applicable to the operation of the Business and the Acquired
      Assets beginning after the Closing Date and with respect to a Straddle Period,
      the portion of such taxable period beginning immediately after the Closing
      Date.




“ Pre-Closing
      Tax Periods ”
means
      taxable periods applicable to the operation of the Business and the Acquired
      Assets ending on or before the Closing Date and with respect to a Straddle
      Period, the portion of such taxable period ending on the Closing
      Date.




“ Previously
      Issued Gift Cards ”
has
      the
      meaning set forth in Section 1.3(d).




“ Previously
      Issued Layaways ”
has
      the
      meaning set forth in Section 1.3(d).




“ Property
      Taxes ”
means
      personal property taxes, real property taxes and occupancy taxes.




“ Prorated
      Assets and Liabilities ”
has
      the
      meaning set forth in Section 5.11(a).




“ Purchase
      Price ”
has
      the
      meaning set forth in Section 1.4.




“ Purchaser ”
has
      the
      meaning set forth in the preamble.




“ Purchaser
      401(k) Plan ”
has
      the
      meaning set forth in Section 6.2(d)




“ Purchaser
      Group ”
has
      the
      meaning set forth in Section 10.1(a).




“ Purchaser’s
      Benefit Plans ”
has
      the
      meaning set forth in Section 6.2(a).




58




“ Radius
      Provision ”
has
      the
      meaning set forth in the definition of Required Consents.




“ Real
      Property ”
has
      the
      meaning set forth in Section 1.2(a)(i).




“ Recapture
      Provision ”
has
      the
      meaning set forth in the definition of Required Consents.




“ Remedial
      Action ”
means
      any response action, removal action, remedial action, corrective action,
      monitoring program, sampling program, investigation or other cleanup activity
      required by any Environmental Law to clean up, remove, remediate, treat or
      abate
      any Hazardous Substance in the environment.




“ Required
      Consents ”
shall
      mean consents for the assignment of the Leases that are sufficient to assign
      to
      Purchaser Leases that provide 90% or more of the Business’ aggregate store
      contribution for the fiscal year ended July 31, 2007 as set forth in Schedule
      1.4 under
      the column labeled “Contr % of Total”. For purposes of determining whether
      a consent shall be deemed to qualify as a Required Consent, such consent (i)
      shall confirm the material terms of the Lease and the absence of any defaults
      or
      breaches thereunder, (ii) shall waive the application of any so-called “radius”
clause with respect to any stores, locations or operations of Purchaser existing
      as of the date hereof (to the extent such “radius” clause could apply to any
      such store, location or operation) (a “ Radius
      Provision ”),
      (iii)
      shall confirm that no payments shall be required as a result of the transfer
      other than reasonable and customary consent fees ( *e.g.* ,
      a
      $1,000 consent fee) or administrative expense reimbursements, which expenses
      shall be borne by Sellers, (iv) shall waive any recapture or similar rights
      of
      termination with respect to the assignment of the Lease (a “ Recapture
      Provision ”),
      (v)
      shall not condition such consent upon a modification in any material respect
      of
      the Lease and (vi) shall not result in any loss of options to extend the term
      thereof or any rights or first refusal or similar rights.




“ Representatives ”
has
      the
      meaning set forth in Section 5.2.




“ Reviewing
      Accountants ”
has
      the
      meaning set forth in Section 5.10(a).




“ Scheduled
      Employees ”
has
      the
      meaning set forth in Section 6.1(a).




“ Schedules ”
means
      the schedules referred to in this Agreement as attached hereto.




“ Seller ”
has
      the
      meaning set forth in the preamble.




“ Seller
      Data ”
has
      the
      meaning set forth in Section 1.2(a)(iv).




“ Seller
      401(k) Plan ”
means
      the 401(k) Plan of Parent and Sellers.




“ Seller
      Group ”
has
      the
      meaning set forth in Section 10.2(a).




“ Seller
      Guarantees ”
has
      the
      meaning set forth in Section 5.15.




59




“ Seller
      Insurance Policies ”
has
      the
      meaning set forth in Section 5.14.




“ Specified
      Marks ”
has
      the
      meaning set forth in Section 1.2(a)(vii).




“ Straddle
      Period ”
means
      the period beginning on or before the Closing Date and ending after the Closing
      Date.




“ Supplemental
      Financial Information ”
has
      the
      meaning set forth in Section 5.7(c).




“ Supplies ”
has
      the
      meaning set forth in Section 1.2(a)(x).




“ Tax ”
means
      (i) all Federal, state, foreign, provincial, local and other governmental taxes,
      assessments, duties, fees, levies or similar charges of any kind, including,
      without limitation, all income, profit, franchise, excise, property, use,
      intangibles, sales, payroll, employment, withholding, stamp, transfer, value
      added, recording, registration, goods and services, real estate, ad valorem,
      net
      proceeds, net worth, special assessments, capital stock, license, social
      security, workers’ compensation, unemployment compensation, utility, severance,
      production, occupation, premium, windfall profits, and other taxes, and
      including all interest, fines, penalties or additions imposed with respect
      to
      such amounts of taxes, assessments, duties, fees, levies or similar charges,
      whether disputed or not, or (ii) any liability for or in respect of the payment
      of any amount described in clause (i) of this definition as a member of a
      consolidated, affiliated, unitary or similar group, as a transferee or
      successor, by contract or otherwise.




“ Tax
      Liability ”
means
      any liability, whether known or unknown, asserted or unasserted, absolute or
      contingent, accrued or unaccrued, liquidated or unliquidated, or due or to
      become due, with respect to Taxes.




“ Tax
      Proceeding ”
has
      the
      meaning set forth in Section 3.17(a).




“ Tax
      Return ”
means
      any return, report, form or other information filed with any Tax authority
      with
      respect to Taxes.




“ Third
      Party ”
means
      any Person that is neither a party to this Agreement nor is an Indemnified
      Party.




“ Third-Party
      Claim ”
means
      any claim, complaint or the commencement of any audit, investigation, action
      or
      proceeding by a Third Party (including any Governmental Entity).




“ Transfer
      Taxes ”
has
      the
      meaning set forth in Section 5.10(b).




“ Transferring
      Employee ”
has
      the
      meaning set forth in Section 6.1(a).




“ Transition
      Services Agreement ”
means
      the form of agreement attached hereto as Exhibit A as to be delivered at
      Closing.




60




SECTION
      12.2 Construction
      and Interpretation of Certain Terms and Phrases .
      Unless
      the context of this Agreement otherwise requires: (i) words of any gender
      include each other gender; (ii) words using the singular or plural number also
      include the plural or singular number, respectively; (iii) the terms “hereof,”
“herein,” “hereby” and derivative or similar words refer to this entire
      Agreement; (iv) the terms “Article” or “Section” refer to the specified Article
      or Section of this Agreement; and (v) the phrases “ordinary course of the
      operation of the Business” and “ordinary course of the operation of the Business
      consistent with past practice” refer to the business and practice of Sellers in
      connection with the Business and the Acquired Assets. Whenever this Agreement
      refers to a number of days, such number shall refer to calendar days unless
      Business Days are specified. The table of contents and headings contained in
      this Agreement are for reference purposes only and shall not affect in any
      way
      the meaning or interpretation of this Agreement. For purposes of any
      indemnification provision in this Agreement, the word “expenses” shall mean
      out-of-pocket expenses, and shall not include any allocations of internal
      salaries and other expenses. Whenever the words “included,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
      the words “without limitation.” The parties hereto have participated jointly in
      the negotiation and drafting of this Agreement. Consequently, in the event
      an
      ambiguity or question of intent or interpretation arises, this Agreement shall
      be construed as if drafted jointly by the parties hereto, and no presumption
      or
      burden of proof shall arise favoring or disfavoring any party by virtue of
      the
      authorship of any provision of this Agreement.




[Signature
      page follows.]




61




IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
      by
      their respective officers thereunto duly authorized, all as of the date first
      written above.




ZALE
                CORPORATIONBy:
            /s/
                Mary E. BurtonName:Mary
                E. BurtonTitle:President
                and Chief Executive OfficerZALE
                DELAWARE, INC.By:
            /s/
                Mary E. BurtonName:Mary
                E. BurtonTitle:President
                and Chief Executive OfficerTXDC,
                L.P.By:
                Zale Delaware, Inc., itsGeneral PartnerBy:
            /s/
                Mary E. BurtonName:Mary
                E. BurtonTitle:President
                and Chief Executive OfficerFINLAY
                FINE JEWELRY CORPORATIONBy:
            /s/
                Bruce ZurlnickName:Bruce
                ZurlnickTitle:Senior
                Vice President, Treasurer andChief Financial Officer








for
                the limited purposes stated herein:FINLAY
                ENTERPRISES, INC.By:
            /s/
                Bruce ZurlnickName:Bruce
                ZurlnickTitle:Senior
                Vice President, Treasurer andChief Financial Officer




62




Pursuant
      to Item 601(b)(2) of Regulation S-K, the following is a list of omitted
      schedules and exhibits to the Asset Purchase Agreement. Finlay agrees to furnish
      supplementally to the Securities and Exchange Commission a copy of any omitted
      exhibit or schedule upon request.




EXHIBITSExhibit
                  A
              Form
                  of Transition Services AgreementSCHEDULES1.2(a)(i)
              Leaseholds1.2(a)(vii)
              Trademarks1.2(a)(viii)
              Copyrights,
                  Domain Names, Licenses1.2(a)(ix)
              Permits1.2(b)(x)
              Excluded
                  Intellectual Property1.2(b)(xiii)
              Other
                  Excluded Property1.3(a)(vii)
              Other
                  Assumed Liabilities1.4
              Purchase
                  Price3.5(a)
              Financial
                  Statements3.5(b)
              Accounting
                  Principles3.6
              Certain
                  Changes3.7
              Litigation3.9
              Real
                  Property3.11
              Advertising3.12(a)
              Intellectual
                  Property Actions3.12(b)
              Intellectual
                  Property Infringement3.13
              Insurance3.14(a)
              Contracts3.15
              Exceptions
                  to Sufficiency3.16
              Environmental
                  Matters3.17
              Taxes3.17(e)
              Jurisdictions3.18
              Labor
                  Matters3.19
              Sellers’
                  Brokers3.20
              Material
                  Benefit Plans4.6
              Purchaser’s
                  Brokers5.1
              Lease
                  Status6.1
              Personnel
                  Who Do Not Work at the Real Property8.2(e)
              Required
                  Consents12.1(a)
              Parent’s
                  and Seller’s Knowledge12.1(b)
              Purchaser’s
                  Knowledge




63