RESTRICTIVE COVENANT AGREEMENT


      THIS RESTRICTIVE  COVENANT AGREEMENT (the "Agreement") is made and entered
into this 11th day of August,  2000, by and among Zale  Corporation,  a Delaware
corporation  ("Parent"),  Piercing  Pagoda,  Inc., a Delaware  corporation  (the
"Company"), and Richard H. Penske, a Pennsylvania resident ("Shareholder").

                                   BACKGROUND:

      A.   Shareholder is the Chief Executive Officer and Chairman, and the
largest shareholder of, the Company.

      B.  Contemporaneously  with the  execution  of this  Agreement,  Parent is
agreeing to acquire the Company pursuant to the terms of that certain  Agreement
and Plan of Merger of even date herewith (the "Merger  Agreement")  by and among
Parent, Jewelry Expansion Corp. and the Company.

      C.   As a material inducement for Parent to enter into the Merger
Agreement, Shareholder has agreed to enter into this Agreement.

      NOW,  THEREFORE,  FOR AND IN  CONSIDERATION  of the  premises,  the mutual
promises,  covenants and agreements  contained  herein,  Ten Dollars ($10.00) in
hand  paid,  and  other  good  and  valuable  consideration,   the  receipt  and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

      1.   Definitions.  For purposes of this Agreement, the following terms
shall have the following respective meanings:

           (a)  "Competing  Business"  shall mean any business that engages,  in
      whole or in part, in the wholesale or retail sale of jewelry.

           (b) "Competitive  Position" shall mean: (i)  Shareholder's  direct or
      indirect equity  ownership  (excluding  ownership of less than one percent
      (1%) of the outstanding  common stock of any publicly held corporation) or
      control of any portion of any Competing Business; (ii) Shareholder serving
      as a director,  officer,  consultant,  lender,  joint  venturer,  partner,
      agent, advisor or independent  contractor of or to any Competing Business;
      or (iii) any employment  arrangement  with any Competing  Business whereby
      Shareholder  is required to perform  services for the  Competing  Business
      substantially similar to those that Shareholder performed for the Company.

           (c) "Confidential  Information" shall mean all valuable,  proprietary
      and confidential business information belonging to or pertaining to Parent
      or the Company that does not constitute a "Trade  Secret" (as  hereinafter
      defined)  and  that  is  not  generally  known  by  or  available  to  the
      competitors  of Parent or the Company but is  generally  known only to the
      employees,  independent  contractors,  clients  or agents of Parent or the
      Company to whom such  information  must be confided for internal  business
      purposes.

           (d)  "Restricted Territory" shall mean all of North America.

           (e) "Trade  Secrets" shall mean the "trade  secrets" of Parent or the
      Company as defined under applicable law.

      2.  Confidentiality.  Shareholder hereby  acknowledges and agrees that the
Trade Secrets and Confidential Information represent a substantial investment of
Parent and the Company and that any unauthorized disclosure or use of any of the
Trade  Secrets  or  Confidential  Information  or  any  other  violation  of the
confidentiality  provisions  of this Section 2 would be wrongful and could cause
immediate  and  irreparable  injury  to  Parent  and the  Company.  Accordingly,
Shareholder hereby agrees that he will not, without the prior written consent of
Parent in each instance,  distribute, sell, market, publish, disclose, transfer,
assign,  disseminate or otherwise  communicate to any other person or entity, or
use, copy or

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appropriate  for or on behalf of himself of any other person or entity:  (a) any
Confidential  Information  for a period of five (5)  years  from the date of the
purchase of shares in the tender  offer  pursuant to the Merger  Agreement  (the
"Effective  Date");  or (b) any  Trade  Secret  at any time  during  which  such
information  constitutes a trade secret under applicable law. Shareholder agrees
that he will adhere to all reasonable  confidentiality  requirements that Parent
may establish from time to time and promptly  notify Parent of any  unauthorized
disclosure  or use of any  Trade  Secret  or  Confidential  Information  by him.
Shareholder  also agrees to assist Parent and the Company,  at Parent's  expense
and to the extent necessary, in the procurement or any protection of Parent's or
the Company's rights in or to any Trade Secrets or Confidential Information.

      3.  Noncompetition.  Shareholder  hereby agrees that,  during the five (5)
year period  commencing  on the Effective  Date, he will not,  without the prior
written consent of Parent in each instance, either directly or indirectly, alone
or in conjunction  with any other person or entity,  accept,  enter into or take
any action in furtherance of a Competitive Position in the Restricted Territory.
Notwithstanding  the foregoing,  the parties hereto agree that  Shareholder may,
after a period of three years from the date hereof,  open one (1) retail jewelry
store.

      4. Nonsolicitation of Customers,  Suppliers and Distributors.  Shareholder
agrees  that,  during the five (5) year period  commencing  as of the  Effective
Date, he will not, without the prior written consent of Parent in each instance,
either directly or indirectly,  alone or in conjunction with any other person or
entity, for or on behalf of any Competing Business solicit, entice or induce any
customer,  supplier  or  distributor  of the  Company  (or any  actively  sought
prospective customer,  supplier or distributor of the Company) with whom or with
which Shareholder had direct contact prior to the date hereof.

      5. Nonsolicitation of Personnel.  Shareholder agrees that, during the five
(5) year period  commencing  as of the Effective  Date he will not,  without the
prior written consent of Parent in each instance, either directly or indirectly,
alone or in conjunction  with any other person or entity,  solicit or attempt to
solicit  any  "key  or  material"  employee,  consultant,  contractor  or  other
personnel  of Parent or the Company to  terminate,  alter or lessen that party's
affiliation  with  such  entity or to  violate  the  terms of any  agreement  or
understanding between such employee, consultant,  contractor or other person and
such  entity.  For  purposes  of this  Section 5, "key or  material"  employees,
consultants,  contractors  or other  personnel  shall mean those such persons or
entities  who  have  direct  access  to or  have  had  substantial  exposure  to
Confidential Information or Trade Secrets.

      6.  Acknowledgments.  Shareholder hereby  acknowledges and agrees that the
covenants  contained  in  Sections  2,  3,  4  and  5  hereof  (the  "Protective
Covenants")  are made by him (and shall be treated) as "ancillary to the sale of
the  Company's  business"  to Parent  under the  Merger  Agreement.  Shareholder
further  acknowledges and agrees that the Protective Covenants are reasonable as
to time, scope and territory given the need of Parent and the Company to protect
the Trade  Secrets  and  Confidential  Information  and  given  the  substantial
benefits  which  Shareholder  shall  receive  as a  result  of the  transactions
contemplated by the Merger Agreement.  In the event any covenant or agreement in
this Agreement shall be determined by any court of competent  jurisdiction to be
unenforceable  by reason of its extending for too great a period of time or over
too great a  geographical  area or by reason of its being too  extensive  in any
other respect, it shall be interpreted to extend only over the maximum period of
time for which it may be enforceable  and/or over the maximum  geographical area
as to which it may be  enforceable  and/or  to the  maximum  extent in all other
respects as to which it may be  enforceable,  all as determined by such court in
such action.

      7. Specific  Performance.  Shareholder hereby acknowledges and agrees that
any breach of a Protective  Covenant by him or it will cause irreparable  damage
to Parent  and the  Company,  the exact  amount of which  will be  difficult  to
ascertain,  and that the remedies at law for any such breach will be inadequate.
Accordingly,  Shareholder  agrees that, in addition to any other remedy that may
be available at law, in equity,  or  hereunder,  Parent and the Company shall be
entitled to specific performance and injunctive relief,  without posting bond or
other  security to enforce or prevent  any  violation  of any of the  Protective
Covenants by him.


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      8.   Miscellaneous.

           (a) This Agreement, together with the Merger Agreement and the Tender
      and Voting  Agreement,  contains the entire  agreement  and  understanding
      concerning  the subject  matter  hereof  between the  parties  hereto.  No
      waiver, termination or discharge of this Agreement, or any of the terms or
      provisions  hereof,  shall be binding  upon  either  party  hereto  unless
      confirmed  in  writing.  This  Agreement  may not be  modified or amended,
      except by a writing  executed by both parties hereto.  No waiver by either
      party hereto of any term or provision of this  Agreement or of any default
      hereunder shall affect such party's rights thereafter to enforce such term
      or  provision or to exercise any right or remedy in the event of any other
      default,  whether or not similar.  This  Agreement  shall  terminate  upon
      termination of the Merger Agreement

           (b) This  Agreement  shall be governed by and construed in accordance
      with the laws of the State of Delaware.

           (c) This  Agreement  may not be  assigned,  in  whole or in part,  by
      Shareholder without the prior written consent of Parent, and any attempted
      assignment  not in  accordance  herewith  shall be null and void and of no
      force or effect.

           (d) This  Agreement  shall be binding on and inure to the  benefit of
      the parties hereto and their respective successors and permitted assigns.

           (e) If any provision of this Agreement shall be held void,  voidable,
      invalid or  inoperative,  no other  provision of this  Agreement  shall be
      affected as a result thereof, and,  accordingly,  the remaining provisions
      of this  Agreement  shall  remain in full force and effect as though  such
      void,  voidable,  invalid or inoperative  provision had not been contained
      herein.

           (f) This Agreement  shall not be construed more strongly  against any
      party hereto regardless of which party is responsible for its preparation.

           (g) Upon the  reasonable  request  of any party,  each  party  hereto
      agrees to take any and all actions,  including,  without  limitation,  the
      execution  of  certificates,   documents  or  instruments,   necessary  or
      appropriate  to give effect to the terms and  conditions set forth in this
      Agreement.

           (h) All rights and  remedies of each party hereto are  cumulative  of
      each other and of every  other  right or remedy  such party may  otherwise
      have at law or in  equity,  and the  exercise  of one or  more  rights  or
      remedies  shall not  prejudice  or impair  the  concurrent  or  subsequent
      exercise of other rights or remedies.

           (i) This Agreement may be executed in one or more counterparts,  each
      of which  shall be deemed  to be an  original,  but all of which  together
      shall  constitute  the  same  Agreement.  Any  signature  page of any such
      counterpart,  or any  electronic  facsimile  thereof,  may be  attached or
      appended to any other counterpart to complete a fully executed counterpart
      of this Agreement, and any telecopy or other facsimile transmission of any
      signature shall be deemed an original and shall bind such party.



<PAGE>


      IN WITNESS WHEREOF, the parties hereto have executed, or caused their duly
authorized  representative  to execute,  this  Agreement  as of the day and year
first above written.


                               "Parent"

                                ZALE CORPORATION


                               By:  /s/ Alan P. Shor
                                      Alan P. Shor,
                                      Executive Vice President and
                                      Chief Operating Officer


                               "Company"

                               PIERCING PAGODA, INC.


                               By:  /s/ John F. Eureyecko
                                      John F. Eureyecko,
                                      President and Chief Executive Officer



                                  "Shareholder"


                               /s/ Richard H. Penske
                                Richard H. Penske