Exhibit 10.7




 





 


 


WARRANT
AND REGISTRATION RIGHTS AGREEMENT


 


by and among


 


ZALE CORPORATION,



THE INITIAL WARRANT HOLDER



and



Z INVESTMENT HOLDINGS, LLC


 


Dated as of May 10,
2010


 




 





 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  
	
   

  
	
  Definitions

  
	
   

  
	
  ARTICLE
  II

  
	
   

  
	
  Original
  Issue of Warrants

  
	
   

  
	
  SECTION 2.01.

  	
  Form of Warrant Certificates

  	
  7

  
	
  SECTION 2.02.

  	
  Execution and Delivery of Warrant Certificates

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  
	
   

  
	
  Exercise
  Price; Exercise of Warrants and Expiration of Warrants

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Exercise Price

  	
  8

  
	
  SECTION 3.02.

  	
  Exercise of Warrants

  	
  8

  
	
  SECTION 3.03.

  	
  Expiration of Warrants

  	
  8

  
	
  SECTION 3.04.

  	
  Method of Exercise; Payment of Exercise Price

  	
  8

  
	
  SECTION 3.05.

  	
  Transferability of the Warrants

  	
  9

  
	
  SECTION 3.06.

  	
  Compliance with the Securities Act

  	
  10

  
	
  SECTION 3.07.

  	
  Exercise for Series A Preferred Stock

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  
	
   

  
	
  Registration
  Rights and Procedures and Listing

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  Demand Registration Rights

  	
  12

  
	
  SECTION 4.02.

  	
  Piggyback Registration Rights

  	
  15

  
	
  SECTION 4.03.

  	
  Expenses of Registration and Selling

  	
  16

  
	
  SECTION 4.04.

  	
  Obligations of the Company

  	
  16

  
	
  SECTION 4.05.

  	
  Suspension of Sales

  	
  19

  
	
  SECTION 4.06.

  	
  Furnishing Information

  	
  19

  
	
  SECTION 4.07.

  	
  Indemnification

  	
  20

  
	
  SECTION 4.08.

  	
  Contribution

  	
  21

  
	
  SECTION 4.09.

  	
  Representations, Warranties and Indemnities to Survive

  	
  22

  
	
  SECTION 4.10.

  	
  Lock-Up Agreements

  	
  22

  
	
  SECTION 4.11.

  	
  Rule 144 Reporting

  	
  22

  



 


i

















 


	
  ARTICLE V

  
	
   

  
	
  Adjustments

  
	
   

  
	
  SECTION 5.01.

  	
  Adjustments for Cash Dividends

  	
  23

  
	
  SECTION 5.02.

  	
  Adjustments Upon Certain Transactions

  	
  23

  
	
  SECTION 5.03.

  	
  Dividends and Distributions

  	
  23

  
	
  SECTION 5.04.

  	
  Issuer Tender Offers

  	
  25

  
	
  SECTION 5.05.

  	
  Consolidation, Merger or Sale

  	
  25

  
	
  SECTION 5.06.

  	
  Preemptive Rights

  	
  26

  
	
  SECTION 5.07.

  	
  Consent Upon Certain Issuances

  	
  26

  
	
  SECTION 5.08.

  	
  Affiliate Transactions

  	
  27

  
	
  SECTION 5.09.

  	
  Fractional Shares

  	
  27

  
	
  SECTION 5.10.

  	
  Notice of Adjustment

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  
	
   

  
	
  Warrant
  Transfer Books

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Warrant Transfer Books

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  
	
   

  
	
  Warrant
  Holders

  
	
   

  
	
  SECTION 7.01.

  	
  No Voting Rights

  	
  28

  
	
  SECTION 7.02.

  	
  Right of Action

  	
  28

  
	
  SECTION 7.03.

  	
  Agent

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  
	
   

  
	
  Representations
  and Warranties

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
  Representations and Warranties of the Company

  	
  29

  
	
  SECTION 8.02.

  	
  Representations and Warranties of the Holders

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  
	
   

  
	
  Covenants

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Reservation of Common Stock for Issuance on Exercise of
  Warrants

  	
  31

  
	
  SECTION 9.02.

  	
  Notice of Dividends

  	
  32

  
	
  SECTION 9.03.

  	
  HSR Act Compliance

  	
  32

  
	
  SECTION 9.04.

  	
  Board Representation

  	
  32

  
	
  SECTION 9.05.

  	
  Stockholder Approval

  	
  34

  
	
  SECTION 9.06.

  	
  Certain Other Events

  	
  36

  



 


ii

















 


	
  SECTION 9.07.

  	
  Transfers

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  
	
   

  
	
  Miscellaneous

  
	
   

  
	
  SECTION 10.01.

  	
  Tax Matters

  	
  36

  
	
  SECTION 10.02.

  	
  Surrender of Certificates

  	
  37

  
	
  SECTION 10.03.

  	
  Mutilated, Destroyed, Lost and Stolen Warrant Certificates

  	
  37

  
	
  SECTION 10.04.

  	
  Removal of Legends

  	
  38

  
	
  SECTION 10.05.

  	
  Notices

  	
  38

  
	
  SECTION 10.06.

  	
  Applicable Law

  	
  39

  
	
  SECTION 10.07.

  	
  Persons Benefiting

  	
  39

  
	
  SECTION 10.08.

  	
  Counterparts

  	
  39

  
	
  SECTION 10.09.

  	
  Amendments

  	
  39

  
	
  SECTION 10.10.

  	
  Headings

  	
  40

  
	
  SECTION 10.11.

  	
  Entire Agreement

  	
  40

  
	
  SECTION 10.12.

  	
  Limitation of Liability

  	
  40

  



 


	
  SIGNATURES

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT
  A

  	
  -

  	
  Form of
  A-Warrant Certificate

  	
  A-1

  
	
  EXHIBIT
  B

  	
  -

  	
  Form of
  B-Warrant Certificate

  	
  B-1

  
	
  EXHIBIT
  C

  	
  -

  	
  Certificate
  of Designation of the Series A Preferred Stock

  	
  C-1

  



 


iii
















 


WARRANT
AND REGISTRATION RIGHTS AGREEMENT


 


AGREEMENT dated as of May 10, 2010 (the “Issuance
Date”), by and among ZALE CORPORATION, a Delaware corporation (the “Company”),
the Initial Warrant Holder (defined below) and Z Investment Holdings, LLC, a
Delaware limited liability company, in its capacity as agent (the “Agent”).


 


WITNESSETH:


 


WHEREAS, the Company is issuing and
delivering (i) warrant certificates in the form of Exhibit A hereto
(the “A-Warrant Certificates”) evidencing A-Warrants to purchase 6,389,378
shares, subject to adjustment, of its Common Stock, and (ii) warrant
certificates in the form of Exhibit B hereto (the “B-Warrant
Certificates”, and together with the A-Warrant Certificates, the “Warrant
Certificates”) evidencing B-Warrants to purchase, subject to the conditions
set forth herein, 4,675,306 shares, subject to adjustment, of its Common Stock,
in each case in connection with the execution and delivery of a senior secured
term loan facility agreement dated May 10, 2010, among the Company, Z
Investment Holdings, LLC, as administrative agent, and the lenders party
thereto, pursuant to which such lenders will make a term loan to the Company in
the amount of $150,000,000;


 


WHEREAS, subject to certain adjustments and
limitations provided herein, the Warrants are exercisable for shares of Common
Stock of the Company;


 


WHEREAS, to the extent of any adjustment to
the A-Warrants that would require the approval of the Company’s stockholders in
order to comply with the New York Stock Exchange Listed Company Manual, the
A-Warrants will instead be exercisable for Series A Preferred Stock of the
Company, on the terms set forth herein; and


 


WHEREAS, in order to comply with the New York
Stock Exchange Listed Company Manual, the exercise of the B-Warrants for Common
Stock shall be subject to the approval of the Company’s stockholders as
specified herein and, in the absence of such approval, the B-Warrants will
instead be exercisable for Series A Preferred Stock of the Company on the
terms set forth herein.


 


NOW, THEREFORE, in consideration of the
foregoing, the Company, the Agent and the Initial Warrant Holder each hereby
agree as follows:


 

















 


ARTICLE I


 


Definitions


 


As used in this Agreement, the following terms shall
have the following meanings:


 


“Affiliate”
means, with respect to any Person, a Person that directly or indirectly
controls, is controlled by or is under direct or indirect common control with,
such Person.  For purposes of this
definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.


 


“Agent”
has the meaning set forth in the preamble to this Agreement.


 


“A-Warrant” means the
A-Warrants issued by the Company from time to time pursuant to this Agreement
under an A-Warrant Certificate.


 


“A-Warrant Certificate”
has the meaning set forth in the recitals to this Agreement.


 


“Board”
means the board of directors of the Company.


 


“Business
Day” means any day that is not a day on which banking institutions are
authorized or required to be closed in the State of New York.


 


“B-Warrant”
means the B-Warrants issued by the Company from time to time pursuant to this
Agreement under a B-Warrant Certificate.


 


“B-Warrant
Certificate” has the meaning set forth in the recitals to this Agreement.


 


“Cashless
Exercise” has the meaning set forth in Section 3.04(b).


 


“Certificate
of Incorporation” means the Company’s Restated Certificate of
Incorporation, as amended from time to time.


 


“Common
Stock” means the common stock, par value $0.01 per share, of the Company.


 


“Common
Stock Equivalent” means any warrant, right or option to acquire any shares
of Common Stock or any security convertible into or exchangeable for shares of
Common Stock.


 


“Company”
has the meaning set forth in the preamble to this Agreement, and its successors
and assigns.


 


2

















 


“Demand
Registration” has the meaning set forth in Section 4.01(a).


 


“Demand
Registration Statement” has the meaning set forth in Section 4.01(a).


 


“DOJ”
has the meaning set forth in Section 9.03.


 


“Effective Issuance Price”
means:


 


(i) with respect to
Common Stock issued for cash, the per share amount of the net cash proceeds
received by the Company for such Common Stock;


 


(ii) with respect to
Common Stock issued for other consideration, the per share amount of the Fair
Market Value of the net consideration received by the Company for such Common
Stock;


 


(iii) with respect to
any option, warrant or other right to acquire Common Stock, whether direct or
indirect and whether or not conditional or contingent, the sum of the per share
amount of (a) the Fair Market Value of the net aggregate consideration, if
any, received by the Company for the issuance of such option, warrant or right
divided by the number of shares of Common Stock into which such option, warrant
or right is exercisable at time of issuance, plus (b) the per share amount
of the net exercise price to the extent paid in cash and the per share Fair
Market Value of the net exercise price if paid in other consideration; and


 


(iv) with respect to
securities convertible into or exchangeable for Common Stock, (a) the net
consideration per security paid for such securities to the extent the price for
such securities is paid in cash or (b) the net Fair Market Value of the
consideration per security paid for such securities to the extent the price for
such securities is paid in other consideration, in each case, as of the date of
their issuance, divided by the number of shares of Common Stock into which such
securities are convertible or exchangeable.


 


“Excess
Shares” has the meaning set forth in Section 3.07(a).


 


“Excess
Tender Amount” has the meaning set forth in Section 5.04.


 


“Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 


“Excluded
Securities” means (i) the Qualifying Employee or Director Stock; (ii) the
Underlying Stock; (iii) any shares of Common Stock or Common Stock
Equivalents issued for non-cash consideration in connection with any merger,
consolidation, acquisition or similar business combination, provided
that if any such transaction involves an Affiliate of the Company, such
transaction is made on an arms’-length basis and supported by a fairness
opinion from an Independent Financial Expert; and (iv) any shares of
Common Stock or Common Stock Equivalents issued for non-cash consideration in
connection with any joint venture, licensing, development or sponsorship
activities in the ordinary course of business, provided that if any such



 


3

















 


transaction involves an
Affiliate of the Company, such transaction is made on an arms’-length basis and
supported by a fairness opinion from an Independent Financial Expert.


 


“Ex-date”
has the meaning set forth in Section 5.03(a).


 


“Exercise
Date” has the meaning set forth in Section 3.02.


 


“Exercise
Price” has the meaning set forth in Section 3.01.


 


“Expenses”
means all expenses incurred by the Company and the Holders in effecting any
registration pursuant to this Agreement, including all registration and filing
fees, printing expenses, reasonable fees and disbursements of one counsel
selected by the Agent to represent all holders of Registrable Securities
included in such registration, Blue Sky fees and expenses, and expenses of the
Company’s independent accountants in connection with any regular or special
reviews or audits incident to or required by any such registration, and all
underwriting discounts and selling commissions applicable to the sale of the
applicable Registrable Securities.


 


“Expiration
Date” means the seventh anniversary of the Issuance Date.


 


“Fair Market Value”
means:


 


(i) in the case of
shares of stock where, at least four months prior to the issuance thereof,
other shares of the same class had already been listed on the New York Stock
Exchange or Nasdaq, the average of the daily volume-weighted average prices of
such stock for the five consecutive trading days immediately preceding the day
as of which Fair Market Value is being determined;


 


(ii) in the case of
securities not covered by clause (i) above or other property, the fair
market value of such securities or such other property as determined by an
Independent Financial Expert, using one or more valuation methods that the
Independent Financial Expert in its best professional judgment determines to be
most appropriate, assuming, in the case of securities, such securities are
fully distributed and, in the case of securities or other property, such items
are to be sold in an arm’s-length transaction and there was no compulsion on
the part of any party to such sale to buy or sell, and taking into account all
relevant factors; and


 


(iii) in the case of
cash, the amount thereof.


 


“FTC”
has the meaning set forth in Section 9.03.


 


“GGC
Appointees” has the meaning set forth in Section 9.04.


 


“Holders”
means the Initial Warrant Holder and any permitted assignee or transferee of
the Initial Warrant Holder and, unless otherwise provided or indicated herein,
the holders of the Registrable Securities.


 


4

















 


“HSR Act” has the
meaning set forth in Section 9.03.


 


“including” means “including,
without limitation”.


 


“Independent
Financial Expert” means a nationally recognized investment banking firm
mutually agreed by the Company and the Agent, which firm does not have a
material financial interest in, or other material economic relationship with,
either the Company or the Agent or their respective Affiliates.  If the Company and the Agent are unable to
agree on an Independent Financial Expert, each of them shall promptly choose a
separate Independent Financial Expert who shall promptly choose a third
Independent Financial Expert who shall serve as the Independent Financial
Expert hereunder; provided that such third Independent Financial Expert
does not have a material financial interest in, or other material economic
relationship with, either the Company or the Agent or their respective
Affiliates.


 


“Initial
Warrant Holder” means Z Investment Holdings, LLC.


 


“Issuance
Date” has the meaning set forth in the preamble to this Agreement.


 


“Maximum
Number of Shares” has the meaning set forth in Section 4.01(c).


 


“Person”
means any individual, corporation, limited liability company, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.


 


“Per
Warrant Cap” has the meaning set forth in Section 3.07(a).


 


“Piggyback
Registration” has the meaning set forth in Section 4.02(a).


 


“Premium
Per Pro Forma Share” has the meaning set forth in Section 5.04.


 


“Prospectus”
means the prospectus included in any Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any of the Registrable Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.


 


“Qualifying
Employee or Director Stock” means (i) rights and options issued in the
ordinary course of business under any Company-sponsored employee benefit plan
or agreement, any Company-sponsored director compensation plan or agreement and
any Common Stock issued after the date hereof upon exercise of such rights and
options and (ii) restricted stock and restricted stock units issued after
the date hereof in the ordinary course of business under any Company-sponsored
employee benefit plan or agreement, any Company-sponsored director compensation
plan or agreement and Common Stock issued after the date hereof in settlement
of any such restricted stock units.


 


5

















 


“Recapitalization
Event” has the meaning set forth in Section 5.03(a).


 


“Register,
registered, and registration” shall refer to a registration effected by
preparing and (a) filing a Registration Statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration of or automatic effectiveness of such Registration Statement or (b) filing
a Prospectus and/or prospectus supplement in respect of an appropriate
effective Registration Statement on Form S-3.


 


“Registrable
Securities” means Common Stock, Series A Preferred Stock or other
securities issuable under the Warrants on the Issuance Date and at any time
during the term of this Agreement.  Registrable
Securities shall continue to be Registrable Securities (whether they continue
to be held by the Initial Warrant Holder or they are sold to other Persons)
until (i) they are sold pursuant to an effective Registration Statement
under the Securities Act; (ii) they may be sold by their holder pursuant
to Rule 144 without limitation thereunder on volume or manner of sale; or (iii) they
shall have otherwise been transferred and new securities not subject to
transfer restrictions under any federal securities laws and not bearing any
legend restricting further transfer shall have been delivered by the Company,
all applicable holding periods shall have expired, and no other applicable and
legally binding restriction on transfer by the Holder thereof shall exist under
the Securities Act.


 


“Registration
Rights” means the rights of Holders set forth in Article IV to have
shares of Registrable Securities registered under the Securities Act for sale
under one or more effective Registration Statements.


 


“Registration
Statement” means any registration statement filed by the Company under the
Securities Act pursuant to the Registration Rights, including the Prospectus,
any amendments and supplements to such registration statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such registration statement.


 


“Reorganization
Event” has the meaning set forth in Section 5.05.


 


“Required
Stockholder Approval” means, collectively, (i) in respect of the
A-Warrants, any approval by the Company’s stockholders required in connection
with an adjustment of the A-Warrants to comply with Section 312.03 of the
New York Stock Exchange Listed Company Manual, and (ii) in respect of the
B-Warrants, the approval by the Company’s stockholders required in connection
with the exercise of the B-Warrants for Common Stock to comply with Section 312.03
of the New York Stock Exchange Listed Company Manual.


 


“Rule 144,
Rule 144A and Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as such rules may
be amended from time to time.


 


“Sale”
has the meaning set forth in Section 3.06(a).


 


6

















 


“Scheduled
Black-Out Period” means the periods (i) from and including the day
that is 10 days prior to the last day of a fiscal quarter of the Company to and
including the day that is two days after the day on which the Company publicly
releases its earnings for such fiscal quarter and (ii) from and including
Thanksgiving Day to and including the day that is two days after the day on
which the Company publicly releases its holiday sales report in January.


 


“SEC”
means the Securities and Exchange Commission.


 


“Securities
Act” means the Securities Act of 1933, as amended.


 


“Series A
Preferred Stock” has the meaning set forth in Section 3.07(a).


 


“Total
Cap” has the meaning set forth in Section 3.07(a).


 


“Underlying
Stock” means the shares of Common Stock or Series A Preferred Stock
issuable or issued upon the exercise of the Warrants.


 


“Vote
Date” means the date of the first meeting of the stockholders of the
Company at which a vote of such stockholders in respect of the Required
Stockholder Approval shall have been taken, which meeting shall be called by
the Board in accordance with Section 9.05 and shall in any event take
place no later than the first annual meeting of the Company’s stockholders to
be held after the Issuance Date.


 


“Voting
Securities” means the Common Stock and any other securities of the Company
of any kind or class having power generally to vote in the election of
directors.


 


“Warrant
Certificates” has the meaning set forth in the recitals to this Agreement.


 


“Warrants”
means, collectively, the A-Warrants and the B-Warrants.


 


ARTICLE II


 


Original Issue of Warrants


 


SECTION 2.01.  Form of Warrant Certificates.  The Warrant Certificates shall be in
registered form only and substantially in the forms attached hereto as Exhibits
A and B, shall be dated the date on which signed by the Company and may have such
legends and endorsements typed, stamped, printed, lithographed or engraved
thereon as provided in Section 3.05 or as may be required to comply with
any applicable law or with any applicable rule or regulation pursuant
thereto or with any applicable rule or regulation of any securities
exchange on which the Warrants may be listed.


 


SECTION 2.02.  Execution and Delivery of Warrant
Certificates.  (a)   Simultaneously with the execution of this
Agreement, (i) A-Warrant Certificates evidencing an aggregate of 6,389,378
A-Warrants entitling the holders thereof to 


 


7

















 


collectively purchase an aggregate of 6,389,378 shares of Common Stock,
subject to adjustment and subject to Section 3.07(a), shall be executed by
the Company and delivered to the Initial Warrant Holder, and (ii) B-Warrant
Certificates evidencing an aggregate of 4,675,306 B-Warrants entitling the
holders thereof to collectively purchase an aggregate of 4,675,306 shares of
Common Stock, subject to adjustment and subject to Section 3.07(b), shall
be executed by the Company and delivered to the Initial Warrant Holder.


 


(b)  From time to time, the Company
shall sign and deliver Warrant Certificates in required denominations to
Persons entitled thereto in connection with any exchange permitted under this
Agreement.  The Warrant Certificates
shall be executed on behalf of the Company by its President, Chief Executive
Officer, Chief Financial Officer, Secretary or Executive Vice President, either
manually or by facsimile signature printed thereon.  In case any officer of the Company whose
signature shall have been placed upon any of the Warrant Certificates shall
cease to be such officer of the Company before issue and delivery thereof, such
Warrant Certificates may, nevertheless, be issued and delivered with the same
force and effect as though such person had not ceased to be such officer of the
Company.


 


ARTICLE III


 


Exercise Price; Exercise of Warrants and Expiration of Warrants


 


SECTION 3.01.  Exercise Price.  Each Warrant Certificate shall entitle the
Holder thereof, subject to the provisions of this Agreement, to purchase,
except as provided in Section 3.04 and Section 3.07 hereof, one share
of Common Stock for each Warrant represented thereby, at an exercise price of
$2.00 per share of Common Stock or, as applicable, Series A Preferred
Stock (the “Exercise Price”), subject to all adjustments made on or
prior to the date of exercise thereof as herein provided.


 


SECTION 3.02.  Exercise of Warrants.  (a)  The A-Warrants shall be exercisable
in whole or in part from time to time on any Business Day beginning on the
Issuance Date and ending on the Expiration Date and (b) the B-Warrants
shall be exercisable in whole or in part from time to time on any Business Day
beginning on the day immediately following the earlier to occur of (i) the
Vote Date and (ii) the date of the first annual meeting of the Company’s
stockholders to be held after the Issuance Date, and ending on the Expiration
Date, in each case in the manner provided for herein (any such date on which
the applicable Warrant shall be exercisable, an “Exercise Date”).


 


SECTION 3.03.  Expiration of Warrants.  Any unexercised Warrants shall expire and the
rights of the Holders of such Warrants to purchase Underlying Stock shall
terminate at the close of business on the Expiration Date.


 


SECTION 3.04.  Method of Exercise; Payment of Exercise
Price.  (a)  In order to
exercise a Warrant, the Holder thereof must (i) surrender the Warrant
Certificate evidencing such Warrant to the Company, with the form on the
reverse of or attached to the Warrant Certificate duly executed, and (ii) pay
in full the Exercise Price then in effect 


 


8

















 


for the shares of Underlying Stock as to which a Warrant Certificate is
submitted for exercise in the manner provided in paragraph (b) of
this Section 3.04.


 


(b)  Simultaneously with the exercise of
each Warrant, payment in full of the Exercise Price shall be delivered to the
Company.  Such payment shall be made (at
the option of the Holder) (i) in cash, by bank wire transfer in
immediately available funds, or (ii) if at the time of such exercise, the
Fair Market Value of the shares of Common Stock (or, with respect to Warrants
exercisable for shares of Series A Preferred Stock, the Fair Market Value
of the shares of Common Stock into which such shares of Series A Preferred
Stock would otherwise be convertible) exceeds the Exercise Price, by
surrendering a number of Warrants (or fractional portions thereof) having a
value equal to the Exercise Price (a “Cashless Exercise”), determined as
provided in this Section 3.04(b). 
The value of each Warrant so surrendered in a Cashless Exercise shall be
equal to the Fair Market Value, at the time of such surrender, of that number
of shares of Common Stock into which such Warrant is then exercisable (or would
be exercisable if Section 3.07 did not then apply with respect to such
exercise), less the Exercise Price.


 


(c)  If fewer than all the Warrants
represented by a Warrant Certificate are surrendered, such Warrant Certificate
shall be surrendered and a new Warrant Certificate of the same tenor and for
the number of Warrants that were not surrendered shall promptly be executed and
delivered to the Person or Persons as may be directed in writing by the Holder
(subject to the terms hereof), and the Company shall register the new Warrant
in the name of such Person or Persons.


 


(d)  Upon surrender of a Warrant
Certificate in accordance with the foregoing provisions, the Company shall
instruct its transfer agent to transfer to the Holder of such Warrant
Certificate appropriate evidence of ownership of any shares of Underlying Stock
or other securities or property (including cash) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, such
name or names as may be directed in writing by the Holder (subject to the terms
hereof), and shall deliver such evidence of ownership and any other securities
or property (including cash) to the Person or Persons entitled to receive the
same, together with an amount in cash in lieu of any fraction of a share as
provided in Section 5.09.  Upon
payment of the Exercise Price therefor, a Holder shall be deemed to own and
have all of the rights associated with any Underlying Stock or other securities
or property (including cash) to which it is entitled pursuant to this Agreement
upon the surrender of a Warrant Certificate in accordance with this
Agreement.  If the Holder shall direct
that such securities be registered in a name other than that of the Holder,
such direction shall be tendered in conjunction with a signature guarantee from
an eligible guarantor institution participating in a signature guarantee
program approved by the Securities Transfer Association.


 


SECTION 3.05.  Transferability of the Warrants.  At any time after the Issuance Date, the
Warrants may be transferred to the Initial Warrant Holder or any Affiliate of
such Holder.  On or prior to January 31,
2011, the Warrants may not, whether directly or as a result of the transfer of
the equity interests in the Holders, be transferred to any Person that is not
the Initial Warrant Holder or an Affiliate of such Holder.  On or after February 1, 2010, the
Warrants may not, whether directly or as a result of the 


 


9

















 


transfer of the equity interests in the
Holders, be transferred to any Person that is not the Initial Warrant Holder or
an Affiliate of such Holder without the prior written consent of the Company
(not to be unreasonably withheld, delayed or conditioned); provided that
no Holder shall transfer, individually or in concert with other Holders, in one
transaction or a series of related transactions, Warrants exercisable for
Common Stock representing (or Series A Preferred Stock convertible into
Common Stock representing, or any combination thereof representing) 15% or more
of the then-outstanding number of shares of Common Stock to any “person” or “group”
(as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than with the prior written consent of the Company (which may be
withheld in the sole discretion of the Company).  Subject to Section 10.04, each
certificate representing the Warrants shall bear the following legend:


 


THESE WARRANTS MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT REFERRED TO BELOW. THE
SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS.  SUCH SECURITIES MAY BE
OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH
ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS
OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010,
BY AND AMONG ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z
INVESTMENT HOLDINGS, LLC, AS AGENT.  A
COPY OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE
OFFICES OF THE COMPANY.


 


SECTION 3.06.  Compliance with the Securities Act.  (a)  No Registrable Securities may be
sold, transferred or otherwise disposed of (any such sale, transfer or other
disposition, a “Sale”), except in compliance with this Section 3.06,
but subject to Section 9.07.


 


(b)  A Holder may sell its Registrable
Securities to a transferee that is an “accredited investor” or “qualified
institutional buyer”, as such terms are defined in Regulation D and Rule 144A,
respectively, under the Securities Act, respectively; provided, however, that each of the following conditions is
satisfied:


 


(i) with
respect to any “accredited investor” that is not an institution, such
transferee provides certification establishing to the reasonable satisfaction of
the Company that it is an “accredited investor”;


 


(ii) such
transferee represents that it is acquiring the Registrable Securities for its
own account and that it is not acquiring such Registrable


 


10
















 


Securities with a view to,
or for offer or sale in connection with, any distribution thereof (within the
meaning of the Securities Act) that would be in violation of the securities
laws of the United States or any applicable state thereof, but subject, nevertheless,
to the disposition of its property being at all times within its control; and


 


(iii) such
transferee agrees to be bound by the provisions of this Section 3.06 with
respect to any sale of the Registrable Securities.


 


(c)          A Holder may
sell its Registrable Securities in accordance with Regulation S under the
Securities Act.


 


(d)         A Holder may
sell its Registrable Securities if:


 


(i) such
Holder gives written notice to the Company of its intention to effect such
Sale, which notice shall describe the manner and circumstances of the proposed
transaction in reasonable detail;


 


(ii) such
notice includes a certification by the Holder to the effect that such proposed
Sale may be effected without registration under the Securities Act or under
applicable Blue Sky laws; and


 


(iii) such
transferee complies with Sections 3.06(b)(ii) and 3.06(b)(iii).


 


(e)          Except for a
Sale in accordance with Section 3.06(f), and subject to Section 10.04,
all stock certificates issued pursuant to the exercise of the Warrants shall
bear the following legend:


 


THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS.  SUCH SHARES MAY BE
OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH
ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS
OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010,
BY AND AMONG ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z
INVESTMENT HOLDINGS, LLC, AS AGENT.  A
COPY OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE
OFFICES OF THE COMPANY.


 


(f)  A Holder may sell its Registrable
Securities in a transaction that is registered under the Securities Act.


 


SECTION 3.07.  Exercise for Series A Preferred
Stock.  (a)  So long as the
Underlying Stock is that of Zale Corporation and the Required Stockholder
Approval has 


 


11

















 


not been obtained, Holders may not exercise any A-Warrants for, or be
entitled to take delivery of, shares of Common Stock issuable with respect to
such A-Warrants to the extent (but only to the extent) that, after such receipt
of any shares of Common Stock upon the exercise of such A-Warrants, Holders
would be issued more than 6,389,378 shares of Common Stock in the aggregate
(the “Total Cap”); provided, however, that in the event
the Company (i) subdivides its outstanding Common Stock or (ii) combines
its outstanding Common Stock into a smaller number of shares, the Total Cap
shall be adjusted by multiplying (A) the Total Cap immediately prior to
such subdivision or combination by (B) a fraction, whose numerator shall
be equal to the number of shares that one share of Common Stock immediately
prior to such subdivision or combination equals immediately after such
subdivision or combination, and whose denominator shall be equal to one.  So long as the Underlying Stock is that of
Zale Corporation and the Required Stockholder Approval has not been obtained,
no A-Warrant shall be exercisable for more than a number of shares of Common
Stock equal to a fraction, whose numerator shall be the Total Cap and whose
denominator shall be 6,389,378 (the “Per Warrant Cap”).  To the extent that the number of shares of
Common Stock into which an A-Warrant is stated to be exercisable (without
giving effect to the Total Cap or Per Warrant Cap) exceeds the Per Warrant Cap
as a result of the application of an adjustment pursuant to Article V
hereof (such excess, the “Excess Shares”), then each A-Warrant shall
instead be exercisable at the Exercise Price into a number of shares of Common
Stock equal to the Per Warrant Cap plus a number of shares of convertible
non-voting preferred stock, par value $0.01 per share, of the Company on the
terms set forth in Exhibit C (the “Series A Preferred Stock”)
that is convertible into the number of Excess Shares.


 


(b)  So long as the Underlying Stock is
that of Zale Corporation and the Required Stockholder Approval has not been
obtained, Holders may not exercise any B-Warrants for, or be entitled to take
delivery of, any shares of Common Stock issuable with respect to such
B-Warrants. At any time that the B-Warrants are exercisable but the Required
Stockholder Approval has not been obtained, each B-Warrant shall instead be
exercisable at the Exercise Price into a number of shares of Series A
Preferred Stock that is convertible into the number of shares of Common Stock
into which the B-Warrants would be exercisable at the time of exercise but for
the fact that the Required Stockholder Approval has not been obtained.


 


ARTICLE IV


 


Registration Rights and Procedures and Listing


 


SECTION 4.01.  Demand Registration Rights.  (a)  Subject to the provisions hereof,
any Holder or Holders may, at any time from and after August 31, 2010,
request registration for resale under the Securities Act of all or part of the
Registrable Securities (a “Demand Registration”) by giving written
notice thereof to the Company (which request shall specify the number of shares
of Registrable Securities to be offered by each Holder and whether such
Registration Statement shall be a “shelf” Registration Statement under Rule 415
promulgated under the Securities Act). 
Subject to Section 4.01(e) below, upon receipt of such notice,
the Company shall use commercially reasonable efforts (i) to file a
Registration Statement (which shall be a “shelf” 


 


12

















 


Registration Statement under Rule 415 promulgated under the Securities
Act if requested pursuant to the request of the Holders pursuant to the first
sentence of this Section 4.01(a)) registering for resale such number of
Registrable Securities as requested to be so registered within 45 days in
the case of a registration on Form S-3 (and 60 days in the case of a
registration on Form S-1) after the request of the Holders therefor (such
Registration Statement, a “Demand Registration Statement”) and (ii) to
cause such Demand Registration Statement to be declared effective by the SEC as
soon as reasonably practicable thereafter. 
Notwithstanding the foregoing, the Company shall not be required to
effect a registration pursuant to this Section 4.01(a): (A) with
respect to securities that are not Registrable Securities; (B) during any
Scheduled Black-Out Period; (C) if the aggregate offering price of the
Registrable Securities to be offered is less than $10,000,000, unless the
Registrable Securities to be offered constitute all of the then-outstanding
Registrable Securities; or (D) within 180 days after the effective
date of a prior registration in respect of the Company’s Common Stock,
including a Demand Registration (or, in the event that Holders were prevented
from including any Registrable Securities requested to be included in a
Piggyback Registration pursuant to Section 4.02, within 90 days after
the effective date of such prior registration in respect of the Company’s
Common Stock).  If permitted under the
Securities Act, such Demand Registration Statement shall be one that is
automatically effective upon filing.


 


(b)  The Holders shall be entitled to
request a total of three Demand Registrations. 
A Registration Statement shall not count as a permitted Demand
Registration unless and until it has become effective and Holders are able to
register at least 50% of the Registrable Securities requested by the Holders to
be included in such registration.  A
Demand Registration shall not count against the number of such registrations
set forth in the immediately preceding sentence if (i) after the
applicable Demand Registration Statement has become effective, such Demand
Registration Statement or the related offer, sale or distribution of
Registrable Securities thereunder becomes the subject of any stop order,
injunction or other order or restriction imposed by the SEC or any other
governmental agency or court for any reason attributable to the Company and
such interference is not thereafter eliminated so as to permit the completion
of the contemplated distribution of Registrable Securities or (ii) in the
case of an underwritten offering, the conditions specified in the related
underwriting agreement, if any, are not satisfied or waived for any reason
attributable to the Company or for any reason not attributable to the selling
Holder or Holders or the Agent or its Affiliates, and as a result of any such
circumstances described in clause (i) or (ii), less than all of the
Registrable Securities covered by the Demand Registration Statement are sold by
the selling Holder or Holders pursuant to the Demand Registration Statement.


 


(c)  The Company may include in a Demand
Registration Statement shares of Common Stock for sale for its own account or
for the account of other security holders of the Company.  If such Demand Registration Statement is in
respect of an underwritten offering and the managing underwriters of the
requested Demand Registration advise the Company and the Holders that in their
reasonable opinion the number of shares of Common Stock proposed to be included
in the Demand Registration Statement exceeds the number of shares of Common
Stock that can be sold in such underwritten offering without materially
delaying or jeopardizing the success of the offering (including the 


 


13

















 


offering price per share) (such maximum number of shares, the “Maximum
Number of Shares”), the Company will include in such Demand Registration
Statement only such number of shares of Common Stock that in the reasonable
opinion of the managing underwriters can be sold without materially delaying or
jeopardizing the success of the offering (including the offering price per
share), which shares of Common Stock will be so included in the following order
of priority:  (i) first, the
Registrable Securities of all Holders, pro
rata on the basis of the aggregate number of Registrable Securities
requested to be included by each such Holder; (ii) second, the shares of
Common Stock the Company proposes to sell; and (iii) third, any other
shares of Common Stock that have been requested to be so included.


 


(d)  If any of the Registrable
Securities covered by a Demand Registration are to be sold in an underwritten
offering, the Company and the Holders of a majority of such Registrable
Securities shall mutually agree upon the selection of the managing underwriter
or underwriters.  If the Company and the
Holders of a majority of such Registrable Securities are unable to agree on the
managing underwriter or underwriters within a reasonable amount of time, the
Company and the Holders of a majority of such Registrable Securities shall each
select a managing underwriter and such underwriters shall serve as joint
managing underwriters in respect of such offering.


 


(e)  Notwithstanding the foregoing, if
the Board determines in its good faith judgment that the filing of a Demand
Registration Statement (i) would be seriously detrimental to the Company
in that such registration would interfere with a material corporate transaction
or (ii) would require the disclosure of material non-public information
concerning the Company that at the time is not, in the good faith judgment of
the Board (excluding the GGC Appointees), in the best interests of the Company
to disclose and is not, in the opinion of the Company’s counsel, otherwise
required to be disclosed, then the Company shall have the right to defer such
filing for the period during which such registration would be seriously
detrimental under clause (i) or would require such disclosure under
clause (ii); provided, however,  that (x) the Company may not defer such filing
for a period of more than 90 days after receipt of any demand by the
Holders and (y) the Company shall not exercise its right to defer a Demand
Registration more than once in any 12-month period.  The Company shall give written notice of its
determination to the Holders to defer the filing and of the fact that the
purpose for such deferral no longer exists, in each case, promptly after the
occurrence thereof.


 


(f)  Notwithstanding the foregoing, if
the Board determines in its good faith judgment that continuing offers and
sales of Registrable Securities registered under a shelf Demand Registration
Statement (i) would be seriously detrimental to the Company in that such
offers and sales would interfere with a material corporate transaction or (ii) would
require the disclosure of material non-public information concerning the
Company that at the time is not, in the good faith judgment of the Board
(excluding the GGC Appointees), in the best interests of the Company to
disclose and is not, in the opinion of the Company’s counsel, otherwise
required to be disclosed, then the Company shall have the right to require the
selling Holder or Holders to suspend such offers and sales for the period
during which such registration would be seriously detrimental under
clause (i) or would require such disclosure under clause (ii); provided, 


 


14

















 


however,
that the total number of days that any such suspension may be in effect in
any 180-day period shall not exceed 60 days.  The Company shall give written notice of its
determination to the Holders to suspend the offers and sales and of the fact
that the purpose for such suspension no longer exists, in each case, promptly
after the occurrence thereof.


 


(g)  Upon the date of effectiveness of
any Demand Registration Statement for an underwritten offering and if such
offering is priced promptly on or after such date, the Company shall use
commercially reasonable efforts to keep the Demand Registration Statement
effective until the earlier of (i) two years (in the case of a shelf
Demand Registration Statement) or 90 days (in the case of any other Demand
Registration Statement) from the effective date of such Registration Statement
and (ii) such time as all of the Registrable Securities covered by such
Demand Registration Statement have been sold pursuant to such Demand
Registration Statement.


 


SECTION 4.02.  Piggyback Registration Rights.  (a)  If at any time the Company has
registered or has determined to register any of its securities for its own
account or for the account of other security holders of the Company on any
registration form (other than Form S-4 or S-8) which permits the inclusion
of the Registrable Securities (a “Piggyback Registration”), the Company
will give the Holders written notice thereof promptly (but in no event less
than 15 days prior to the anticipated filing date) and, subject to Section 4.02(c),
shall include in such registration all Registrable Securities requested to be
included therein pursuant to the written request of one or more Holders
received within 10 days after delivery of the Company’s notice.  If a Piggyback Registration is initiated as a
primary underwritten offering on behalf of the Company, and the managing
underwriters advise the Company and the Holders that in their reasonable
opinion the number of shares of Common Stock and other Registrable Securities
proposed to be included in such registration exceeds the Maximum Number of
Shares, the Company shall include in such registration:  (i) first, the number of shares of
Common Stock that the Company proposes to sell; and (ii) second, the
number of shares of Common Stock and other Registrable Securities requested to
be included therein by holders of Common Stock and other Registrable
Securities, including Holders who have provided notice in accordance with this Section 4.02(a),
pro rata among all such holders on the basis of the number of shares of Common
Stock and other Registrable Securities requested to be included therein by all
such holders or as such holders and the Company may otherwise agree.


 


(b)  If a Piggyback Registration is
initiated as an underwritten registration on behalf of a holder of shares of
Common Stock other than the Holders, and the managing underwriters advise the
Company that in their reasonable opinion the number of shares of Common Stock
and other Registrable Securities proposed to be included in such registration
exceeds the Maximum Number of Shares, then the Company shall include in such
registration:  (i) first, the number
of shares of Common Stock requested to be included therein by the holder(s) requesting
such registration; (ii) second, the number of shares of Common Stock and
other Registrable Securities requested to be included therein by other holders
of shares of Common Stock and other Registrable Securities, including the
Holders (if the Holders have elected to include Registrable Securities in 


 


15

















 


such Piggyback Registration), pro
rata among such holders on the basis of the number of shares of Common
Stock and other Registrable Securities requested to be included therein by such
holders or as such holders and the Company may otherwise agree; and (iii) third,
the number of shares of Common Stock that the Company proposes to sell.


 


(c)  If any Piggyback Registration is a
primary or secondary underwritten offering, the Company shall have the right to
select, in its sole discretion, the managing underwriter or underwriters to
administer any such offering.


 


(d)  The Company shall not grant to any
Person the right to request the Company to register any Common Stock in a
Piggyback Registration unless such rights are consistent with the provisions of
this Section 4.02.


 


SECTION 4.03.  Expenses of Registration and Selling.  All Expenses incurred in connection with any
registration, qualification or compliance hereunder shall be borne by the
Company.  All Expenses (including, for
the avoidance of doubt, any underwriting discount or commission applicable to
the sale by a Holder) incurred in connection with the sale of any securities
registered hereunder shall also be borne by the Company.


 


SECTION 4.04. 
Obligations of the Company. 
Whenever required to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably practicable, subject to the
other provisions of this Article IV:


 


(a)  Prepare and file with the SEC a
Registration Statement with respect to a proposed offering of Registrable
Securities and use commercially reasonable efforts to have such Registration
Statement declared effective as promptly as practicable.


 


(b)  Prepare and file with the SEC such
amendments and supplements to the applicable Registration Statement and the
Prospectus or prospectus supplement used in connection with such Registration
Statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities covered by
such Registration Statement.


 


(c)  Furnish to the selling Holder or
Holders and any underwriters such number of copies of the applicable
Registration Statement and each such amendment and supplement thereto
(including in each case all exhibits) and of a Prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned or to be distributed
by them.


 


(d)  Use commercially reasonable efforts
to register and qualify the securities covered by such Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the selling Holder or Holders or any managing
underwriter(s), to keep such registration or qualification in effect for so
long as such Registration Statement remains in effect, and to take any other
action which may be reasonably necessary to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such selling
Holder or 


 


16

















 


Holders; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business, to file a general consent to service of process or
become subject to taxation in any such states or jurisdictions.


 


(e)  Notify the selling Holder or
Holders at any time when a Prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the applicable Prospectus, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which such statements were made, not misleading.


 


(f)            Give written
notice to the selling Holder or Holders:


 


(i) when any Registration Statement filed pursuant to Section 4.01
or 4.02 or any amendment thereto has been filed with the SEC and when such
Registration Statement or any post-effective amendment thereto has become
effective;


 


(ii) of any request by the SEC for amendments or supplements to
any Registration Statement or the Prospectus included therein or for additional
information;


 


(iii) of the issuance by the SEC of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose;


 


(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and


 


(v) of the happening of any event that requires the Company to
make changes in any effective Registration Statement or Prospectus in order to
make the statements therein not misleading (in the case of the Prospectus, in
the light of the circumstances under which such statements were made) (which
notice shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).


 


(g)         Use
commercially reasonable efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement referred to in Section 4.04(f)(iii) at the earliest
practicable time.


 


(h)  Upon the occurrence of any event
contemplated by Section 4.04(f)(v), promptly prepare a post-effective
amendment to such Registration Statement or a supplement to the related
Prospectus or file any other required document so that, as thereafter delivered
to the selling Holder or Holders and any underwriters, the Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which 


 


17

















 


they were made, not misleading. 
If the Company notifies the selling Holder or Holders in accordance with
Section 4.04(f)(v) to suspend the use of the Prospectus until the
requisite changes to the Prospectus have been made, then the selling Holder or
Holders and any underwriters shall suspend use of such Prospectus and use
commercially reasonable efforts to return to the Company all copies of such
Prospectus (at the Company’s expense) other than permanently filed copies then
in the possession of the selling Holder or Holders or the underwriter.


 


(i)  Use commercially reasonable efforts
to procure the cooperation of the Company’s transfer agent in settling any
offering or sale of Registrable Securities, including with respect to the
transfer of physical stock certificates into book-entry form in accordance with
any procedures reasonably requested by the selling Holder or Holders or any
managing underwriter(s).


 


(j)  Enter into an underwriting
agreement in form, scope and substance as is customarily entered into for
similar underwritten offerings of equity securities by similar companies and
take all such other actions reasonably requested by the selling Holder or
Holders or by the managing underwriter(s), if any, to expedite or facilitate
the underwritten disposition of such Registrable Securities, and in connection
therewith (i) make such representations and warranties to the selling
Holder or Holders and the managing underwriter(s), if any, with respect to the
business of the Company and its subsidiaries, and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, substance and scope as are
customarily made by the issuer in similar underwritten offerings of equity
securities by similar companies, and, if true, confirm the same if and when
requested; (ii) use commercially reasonable efforts to furnish the
underwriter(s) with opinions of counsel to the Company, addressed to the
managing underwriter(s), if any, covering the matters customarily covered in
the opinions requested in similar underwritten offerings of equity securities
by similar companies; (iii) use commercially reasonable efforts to obtain “cold
comfort” letters from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any business acquired by the Company for which financial statements and
financial data are included in the Registration Statement) who have certified
the financial statements included in such Registration Statement, addressed to
each of the managing underwriter(s), if any, such letters to be in customary
form and covering matters of the type customarily covered in “cold comfort”
letters in connection with similar underwritten offerings of equity securities
by similar companies; (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures customary in
similar underwritten offerings of equity securities by similar companies and
consistent with the provisions of Section 4.07 hereof; and (v) deliver
such documents and certificates as may be reasonably requested by the selling
Holder or Holders, their counsel and the managing underwriter(s), if any, to
evidence the continued validity of the representations and warranties made
pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company.


 


18

















 


(k)  Make available for inspection by a
single representative of the selling Holder or Holders and the managing
underwriter(s), if any, and their respective attorneys or accountants, at the
offices where normally kept, during reasonable business hours, financial and
other records, pertinent corporate documents and properties of the Company, and
cause the officers, directors and employees of the Company to supply all
information in each case reasonably requested by any such representative,
managing underwriter(s), attorney or accountant in connection with such
Registration Statement.


 


(l)  (i) Use commercially
reasonable efforts to cause all shares of Common Stock covered by a
Registration Statement to be listed on the national securities exchange or
national market interdealer quotation system on which the Common Stock is then
listed, and enter into such customary agreements, including a supplemental
listing application and indemnification agreement in customary form; provided, however, that the applicable listing requirements are
satisfied, and (ii) provide a transfer agent and registrar for such
Registrable Securities covered by such Registration Statement no later than the
effective date of such Registration Statement. 
The Company shall bear the cost of all reasonable expenses associated
with any listing.  A copy of any opinion
of counsel accompanying a listing application by the Company with respect to
such Registrable Securities shall be furnished to the selling Holder or
Holders.


 


(m)  Make reasonably available senior
executives of the Company to participate in “road show” and other marketing
presentations from time to time as reasonably requested by the managing
underwriter(s).


 


SECTION 4.05.  Suspension of Sales.  During any Scheduled Black-Out Period and
upon receipt of written notice from the Company that a Registration Statement,
Prospectus or prospectus supplement contains or may contain an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that
circumstances exist that make the use of such Registration Statement,
Prospectus or prospectus supplement inadvisable, the selling Holder or Holders
shall forthwith discontinue disposition of Registrable Securities until
termination of such Scheduled Black-Out Period or until the selling Holder or
Holders have received copies of a supplemented or amended Prospectus or
prospectus supplement, or until the selling Holder or Holders are advised in
writing by the Company that the use of the Prospectus and, if applicable,
prospectus supplement may be resumed.  If
so directed by the Company, the selling Holder or Holders shall deliver to the
Company (at the Company’s expense) all copies, other than permanent file copies
then in the selling Holder’s or Holders’ possession, of the Prospectus and, if
applicable, prospectus supplement covering such Registrable Securities current
at the time of receipt of such suspension notice.  The total number of days that any such
suspension may be in effect in any 180-day period shall not exceed
60 days.


 


SECTION 4.06.  Furnishing Information.  It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 4.04
that the selling Holder or Holders and the underwriter(s), if any, shall
furnish to the Company such information regarding themselves, the Registrable
Securities held by them and the 


 


19

















 


intended method of disposition of such securities as shall be required
to effect the registered offering of their Registrable Securities.


 


SECTION 4.07. 
Indemnification.  (a) 
In connection with each registration pursuant to Article IV, the Company
agrees to indemnify and hold harmless each selling Holder, and each Person, if
any, who controls any selling Holder within the meaning of Section 15 of
the Securities Act, as follows:


 


(i) against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
arising out of an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment thereto), or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arising
out of an untrue statement of a material fact included in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and


 


(ii) against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
to the extent of the aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if such settlement
is effected with the written consent of the Company, which consent shall not be
unreasonably withheld;


 


provided, however, that, with respect to any selling Holder, this indemnity
shall not apply to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the
Registration Statement (or any amendment thereto), or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).


 


(b)  Each selling Holder agrees
severally, and not jointly, to indemnify and hold harmless the Company, its
directors, each of its officers who signed a Registration Statement, and the
other selling Holders, and each Person, if any, who controls the Company and
any other selling Holder within the meaning of Section 15 of the
Securities Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 4.07(a), as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto), or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the
Registration Statement (or any amendment thereto), or any preliminary


 


20
















 


prospectus or the Prospectus (or any amendment or supplement thereto); provided
that no such selling Holder shall be liable under this Section 4.07 for
any amounts exceeding the product of the sales price per Registrable Security
and the number of Registrable Securities being sold pursuant to such
Registration Statement or Prospectus by such selling Holder.


 


(c)  Each indemnified party shall give
prompt notice to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve the indemnifying party from any liability
it may have under this Agreement, except to the extent that the indemnifying
party is prejudiced thereby.  If it so
elects, after receipt of such notice, an indemnifying party, jointly with any
other indemnifying parties receiving such notice, may assume the defense of
such action with counsel chosen by it; provided, however,
that the indemnified party shall be entitled to participate in (but not
control) the defense of such action with counsel chosen by it, the reasonable
fees and expenses of which shall be paid by such indemnified party, unless a
conflict would arise if one counsel were to represent both the indemnified
party and the indemnifying party, in which case the reasonable fees and
expenses of counsel to the indemnified party shall be paid by the indemnifying
party or parties.  In no event shall the
indemnifying party or parties be liable for a settlement of an action with respect
to which they have assumed the defense if such settlement is effected without
the written consent of such indemnifying party, or for the reasonable fees and
expenses of more than one counsel for (i) the Company, its officers,
directors and controlling persons as a group, and (ii) the selling Holders
and their controlling persons as a group, in each case, in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances; provided, however, that if, in the reasonable judgment of an
indemnified party, a conflict of interest may exist between such indemnified
party and the Company or any other of such indemnified parties with respect to
such claim, the indemnifying party shall be obligated to pay the reasonable
fees and expenses of such additional counsel.


 


SECTION 4.08.  Contribution.  (a)  If the indemnification provided
for  in or pursuant to Section 4.07
is due in accordance with the terms hereof, but held by a court of competent
jurisdiction to be unavailable or unenforceable in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which result in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable
considerations.  The relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party, and by such party’s
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.  In
no event shall the 


 


21

















 


liability of the selling Holders be greater in amount than the amount
for which such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under Section 4.07(a) had
been available under the circumstances.


 


(b)  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. 
For purposes of this Section 4.08(b), each director of the Company,
each officer of the Company who signed a Registration Statement, and each
Person, if any, who controls the Company or a selling Holder within the meaning
of Section 15 of the Securities Act shall have the same rights to
contribution as the Company or such selling Holder, as the case may be.


 


SECTION 4.09.  Representations, Warranties and
Indemnities to Survive.  The
indemnity and contribution agreements contained in this Article IV and the
representations and warranties of the Company referred to in Section 4.04(j) shall
remain operative and in full force and effect regardless of (i) any
termination of any underwriting or agency agreement; (ii) any
investigation made by or on behalf of the selling Holder or Holders, the
Company or any underwriter or agent or controlling Person; or (iii) the
consummation of the sale or successive resales of the Registered Securities.


 


SECTION 4.10.  Lock-Up Agreements.  (a)  The Company agrees that, in connection
with an underwritten offering in respect of which Registrable Securities are
being sold, if requested by the managing underwriter(s), it will not, directly
or indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock (subject to customary exceptions),
other than any such sale or distribution of Common Stock upon exercise of the
Warrants, in the case of an underwritten offering, for a period of 90 days
from the effective date of the registration statement pertaining to such
Registrable Securities or such shorter period to which the selling Holder or
Holders are subject.


 


(b)  The lock-up agreements set forth in
Section 4.10(a) shall be subject to customary exceptions that may be
set forth in a written underwriting agreement.


 


SECTION 4.11. 
Rule 144 Reporting. 
With a view to making available to the Holders the benefits of certain rules and
regulations of the SEC which may permit the sale of the Registrable Securities
to the public without registration, the Company agrees, so long as it is
subject to the periodic reporting requirements of the Exchange Act, to use
commercially reasonable efforts to:


 


(a) make and keep
public information available, as those terms are understood and defined in Rule 144(c)(1) or
any similar or analogous rule promulgated under the Securities Act, at all
times after the effective date of this Agreement;


 


(b) file with the SEC,
in a timely manner, all reports and other documents required of the Company
under the Exchange Act; and


 


22

















 


(c) so long as the
Holders own any Registrable Securities, furnish to such Holders forthwith upon
request:  (i) in the event the
Company is no longer subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the
Securities Act and of the Exchange Act; (ii) in the event the Company is
subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company; and (iii) such other reports and documents as the Holders may
reasonably request in availing themselves of any rule or regulation of the
SEC allowing them to sell any such securities without registration; provided,
however, that the Company shall be deemed to have furnished any such
document if it shall have timely made such document available on the SEC’s
Electronic Data Gathering, Analysis and Retrieval System, or a successor
system.


 


ARTICLE V


 


Adjustments


 


SECTION 5.01.  Adjustments for Cash Dividends.  In the event that the Company shall pay a
cash dividend on the shares of its Common Stock, the Exercise Price for each
Warrant shall be reduced by the cash dividend paid on each share of Common
Stock.


 


SECTION 5.02.  Adjustments Upon Certain Transactions.  The Exercise Price and the number of shares
of Common Stock issuable upon exercise of each Warrant shall be adjusted in the
event the Company (i) pays a dividend or makes any other distribution with
respect to its Common Stock solely in shares of its Common Stock; (ii) subdivides
its outstanding Common Stock; or (iii) combines its outstanding Common
Stock into a smaller number of shares. 
In such event, the number of shares of Common Stock issuable upon
exercise of each Warrant immediately prior to the record date for such dividend
or distribution or the effective date of such subdivision or combination shall
be adjusted so that the Holder of each Warrant shall thereafter be entitled to
receive the number of shares of Common Stock that such Holder would have owned
or have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto.  In addition, upon an adjustment pursuant to
this Section 5.02, the Exercise Price for each share of Common Stock
payable upon exercise of such Warrant shall be adjusted (calculated to the
nearest $.0001) so that it shall equal the product of the Exercise Price
immediately prior to such adjustment multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock issuable upon the exercise
of each Warrant immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Common Stock so issuable immediately
thereafter.  Such adjustment shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.


 


SECTION 5.03.  Dividends and Distributions.  (a)  If the Company shall fix a record
date for the payment of a dividend or the making of a distribution with respect
to the Common Stock (other than one subject to Section 5.01 or Section 5.02),



 


23

















 


including in connection with a Recapitalization Event (it being
understood that, if there is a distribution in connection with a
Recapitalization Event and no record date is set therefor, the effective date
of such Recapitalization Event shall be deemed to be the record date fixed by
the Company for purposes of this Section 5.03), the Exercise Price
immediately after the record date for such dividend or distribution shall be
determined by multiplying (A) the Exercise Price in effect on such record
date by (B) a fraction, the numerator of which shall be the Fair Market
Value per share of Common Stock as of the last trading day before the date (the
“Ex-date”) on which the Common Stock first trades without the right to
receive such dividend or distribution less the Fair Market Value of the items
distributed in respect of each share of Common Stock in such dividend or
distribution, and the denominator of which shall be the Fair Market Value per
share of Common Stock as of the last trading day before the Ex-date.  As used in this Section 5.03, “Recapitalization
Event” means any consolidation, merger or similar extraordinary transaction
(other than any consolidation, merger or similar extraordinary transaction of
the Company with an unaffiliated third party), or any recapitalization or
reclassification of the Common Stock. 
Upon any adjustment of the Exercise Price pursuant to this Section 5.03,
the total number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be such number of shares (calculated to the nearest
hundredth) purchasable per Warrant immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Fair Market Value
per share of Common Stock as of the last trading date before the Ex-date, and
the denominator of which shall be the Fair Market Value per share of Common
Stock as of the last trading date before the Ex-date less the Fair Market Value
of the items distributed in respect of each share of Common Stock in such
dividend or distribution.


 


(b)  In the case of a Recapitalization
Event in which outstanding shares of Common Stock are converted either solely
or partially into shares of common stock of another company, each Warrant shall
become a Warrant to purchase a number of shares of common stock of the other
company for an Exercise Price per share calculated by (i) first, applying
the rules in Sections 5.01 or 5.02, as applicable, and Section 5.03(a) to
determine an initially adjusted Exercise Price per share and number of shares
of Common Stock purchasable upon the exercise of each Warrant, (ii) second,
multiplying the initially adjusted number of shares by the number of shares of
common stock of the other company into which each share of Common Stock of the
Company shall be converted in the Recapitalization Event to arrive at the final
adjusted number of shares of common stock of the other company purchasable upon
exercise of each Warrant and (iii) third, dividing the initially adjusted
Exercise Price per share of Common Stock by the number of shares of common
stock of the other company into which each share of Common Stock of the Company
shall be converted in the Recapitalization Event to arrive at the final
adjusted Exercise Price per share of common stock of the other company.  In any case where this Section 5.03(b) applies,
the second sentence of Section 5.05 shall also apply to the Recapitalization
Event as though it were a Reorganization Event.


 


(c)  Notwithstanding anything to the
contrary contained herein, in the case of a Recapitalization Event, to the
extent that one or more of the adjustments set forth in Section 5.01 or
5.02 would be applicable to such Recapitalization Event, the adjustments set
forth in Sections 5.01, 5.02 and 5.03(a) shall be applied in the
order in which the 


 


24

















 


events described in such Sections occur; provided, however,
that no adjustment pursuant to Section 5.01, 5.02 or 5.03(a), as
applicable, shall be made for an event in connection with such Recapitalization
Event for which an adjustment has already been made.


 


SECTION 5.04.  Issuer Tender Offers.  If a publicly-announced tender offer made by
the Company or any of its subsidiaries for all or any portion of the Common
Stock shall expire and tendering holders of Common Stock are paid aggregate
consideration having a Fair Market Value, when paid, which exceeds the
aggregate Fair Market Value of the Common Stock acquired in such tender offer
as of the last trading date before the date on which such tender offer is first
publicly announced (such excess, the “Excess Tender Amount”), then the
Exercise Price in effect immediately after the tender offer expires shall be
determined by multiplying (i) the Exercise Price in effect immediately
prior to such adjustment by (ii) a fraction, the numerator of which shall
be the Fair Market Value per share of the Common Stock as of the last trading
day before the date on which such tender offer is first publicly announced less
the Premium Per Pro Forma Share, and the denominator of which shall be the Fair
Market Value per share of Common Stock as of the last trading day before the
date on which such tender offer is first publicly announced.  As used herein, “Premium Per Pro Forma
Share” means (x) the Excess Tender Amount divided by (y) the
number of shares of Common Stock outstanding at expiration of the tender offer
after giving pro forma effect to the purchase of shares in the tender
offer.  Upon any adjustment of the
Exercise Price pursuant to this Section 5.04, the total number of shares
of Common Stock purchasable upon the exercise of each Warrant shall be such
number of shares (calculated to the nearest hundredth) purchasable per Warrant
immediately prior to such adjustment multiplied by a fraction, the numerator of
which shall be the Fair Market Value per share of Common Stock as of the last
trading day before the date on which such tender offer is first publicly
announced, and the denominator of which shall be the Fair Market Value per
share of the Common Stock as of the last trading day before the date on which
such tender offer is first publicly announced less the Premium Per Pro Forma
Share.


 


SECTION 5.05.  Consolidation, Merger or Sale.  If any consolidation, merger or similar
extraordinary transaction of the Company with another Person (other than any
subsidiary of the Company), or the sale of all or substantially all of its
assets, other than in any such case a Recapitalization Event, shall be effected
(a “Reorganization Event”), and in connection with such Reorganization
Event, the Common Stock shall be converted into or exchanged for or become the
right to receive cash, securities or other property, then, as a condition of
such Reorganization Event, lawful and adequate provisions shall be made by the
Company whereby the Holder of each Warrant shall thereafter have the right to
purchase and receive on exercise of such Warrant, for an aggregate price equal
to the aggregate Exercise Price for all of the shares underlying the Warrant as
in effect immediately before such transaction (subject to adjustment thereafter
as contemplated by the succeeding sentence), the same kind and amount of cash,
securities or other property as it would have had the right to receive if it
had exercised such Warrant immediately before such transaction and been
entitled to participate therein.  In the
event of any such Reorganization Event, the Company shall make appropriate
provision to ensure that applicable provisions of this Agreement (including the
provisions of Article IV and this Article V) shall thereafter be
binding on the other party to such 


 


25

















 


transaction (or the successor in such transaction) and applicable to
any securities thereafter deliverable upon the exercise of Warrants.  The Company will not effect any such
Reorganization Event unless, prior to the consummation thereof, the successor
entity (if other than the Company) resulting from such Reorganization Event or
the entity purchasing such assets shall assume, by written instrument
reasonably satisfactory in form and substance to the Agent, executed and mailed
or delivered to each Holder of a Warrant at the last address of such Holder
appearing on the books of the Company, the obligation to deliver the cash,
securities or property deliverable upon exercise of Warrants.  The Company shall notify the Holder of each
Warrant of any such proposed Reorganization Event reasonably prior to the
consummation thereof so as to provide such Holder with a reasonable opportunity
prior to such consummation to exercise each Warrant in accordance with the
terms and conditions hereof; provided, however, that in the case
of a transaction which requires notice to be given to the holders of Common
Stock of the Company, the Holder of each Warrant shall be provided the same
notice given to the holders of Common Stock of the Company.


 


SECTION 5.06.  Preemptive Rights.  Upon any issuance for cash of any shares of
Common Stock, rights or options to acquire Common Stock or securities
convertible or exchangeable into Common Stock for cash (in each case, other
than issuances that result in adjustments pursuant to Section 5.02 or Section 5.03),
subject to obtaining any required approval of the Company’s stockholders to
comply with Section 312.03 of the New York Stock Exchange Listed Company
Manual, the Initial Warrant Holder and its Affiliates, if they still hold at least
50% of the total Warrants issued to the Initial Warrant Holder on the Issuance
Date, shall have additional subscription rights allowing the Initial Warrant
Holder and its Affiliates to maintain their proportionate, as-if-exercised
ownership interest in the Company based on the number of shares of Common Stock
outstanding immediately prior to such issuance. 
For the avoidance of doubt, obtaining such approval shall be a condition
for the Company to undertake any issuance subject to this Section 5.06.  In the event that any issuance subject to
this Section 5.06 involves a public or Rule 144A offering, the
Initial Warrant Holder and the Company shall negotiate in good faith as to the
provision of such subscription rights so as not to materially delay or jeopardize
the success of such public offering.  The
foregoing shall not apply to any issuance of Excluded Securities.


 


SECTION 5.07.  Consent Upon Certain Issuances.  (a)  So long as either (i) the
Initial Warrant Holder or any of its Affiliates own any Warrants or (ii) Warrants
exercisable for, in the aggregate, not less than 100,000 shares of Common Stock
(or Series A Preferred Stock convertible into not less than 100,000 shares
of Common Stock) remain outstanding, the Company shall not issue shares of Common
Stock, Common Stock Equivalents or rights or options to acquire Common Stock
Equivalents (in each case other than Excluded Securities) at an Effective
Issuance Price that is lower than the greater of (A) the Exercise Price
then in effect for all Warrants and (B) the then-current fair market value
of a share of the Company’s Common Stock, less, if applicable in any such
issuance, underwriting discounts or commissions in an amount customary for
similarly situated issuers in offerings of the applicable type (in each case,
other than issuances that result in adjustments pursuant to Section 5.02
or Section 5.03), without, in 


 


26

















 


either such case, the prior written consent
of the holders of a majority of the Warrants (not to be unreasonably withheld,
delayed or conditioned).


 


(b)  So long as either (i) the
Initial Warrant Holder or any of its Affiliates own any Warrants or (ii) Warrants
exercisable for, in the aggregate, not less than 100,000 shares of Common Stock
(or Series A Preferred Stock convertible into not less than 100,000 shares
of Common Stock) remain outstanding, the Company shall not issue any Qualifying
Employee or Director Stock consisting of any stock option or stock purchase
right with an exercise price, or consisting of a grant of shares where the
amount of the grant is denominated in dollars and the number of shares granted
is determined by reference to a share price, in either case that is lower than
the greater of (A) the Exercise Price then in effect for all Warrants and (B) the
closing price per share of Common Stock on the date of grant, without, in
either such case, the prior written consent of the holders of a majority of the
Warrants (not to be unreasonably withheld, delayed or conditioned).


 


SECTION 5.08.  Affiliate Transactions.  In the event that the Company shall issue any
shares of Common Stock to, or repurchase any shares of Common Stock from, any
Affiliate, other than Excluded Securities, such issuance or repurchase shall be
on terms no less favorable to the Company than those obtainable by a party who
is not an Affiliate.


 


SECTION 5.09.  Fractional Shares.  No fractional shares shall be issued upon
exercise of any Warrant.  Instead, the
Company shall pay to the Holder, in lieu of issuing any fractional share, a sum
in cash equal to such fraction multiplied by the Fair Market Value of a share
of Common Stock on the trading day immediately prior to the date of exercise.


 


SECTION 5.10.  Notice of Adjustment.  Whenever the number of shares of Common Stock
or other stock or property issuable upon the exercise of each Warrant or the
Exercise Price is adjusted, as herein provided, the Company shall promptly mail
by first-class mail, postage prepaid, to the Agent and each Holder of a Warrant
notice of such adjustment or adjustments setting forth the number of shares of
Common Stock or other stock or property issuable upon the exercise of each
Warrant and the Exercise Price after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.


 


ARTICLE VI


 


Warrant Transfer Books


 


SECTION 6.01. 
Warrant Transfer Books. 
Subject to Section 3.05:


 


(a)  The Company shall keep at its
principal place of business a register in which the Company shall provide for
the registration of Warrant Certificates and of any exchanges of Warrant
Certificates as herein provided.


 


(b)  At the option of the Holder,
Warrant Certificates may be exchanged at such office and upon payment of the
charges hereinafter provided.  Whenever
any 


 


27

















 


Warrant Certificates are so surrendered for exchange, the Company shall
execute and deliver the Warrant Certificates that the Holder making the exchange
is entitled to receive.


 


(c)  All Warrant Certificates issued
upon any registration of transfer or exchange of Warrant Certificates shall be
the valid obligations of the Company, evidencing the same obligations, and
entitled to the same benefits under this Agreement, as the Warrant Certificates
surrendered for such registration of transfer or exchange.


 


(d)  Every Warrant Certificate
surrendered for registration of exchange shall (if so required by the Company)
be duly endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company, duly executed by the Holder thereof or
his attorney duly authorized in writing.


 


(e)  No service charge shall be made to
a Holder for any registration of transfer or exchange of any Warrant
Certificates, and the Company shall pay any taxes or other governmental charges
that may be imposed in connection with any registration of exchange of Warrant
Certificates.


 


(f)  Any Warrant Certificate when duly
endorsed in blank shall be deemed negotiable and when a Warrant Certificate
shall have been so endorsed, the Holder thereof may be treated by the Company
and all other Persons dealing therewith as the absolute owner thereof for any
purpose and as the Person entitled to exercise the rights represented thereby.


 


ARTICLE VII


 


Warrant Holders


 


SECTION 7.01.  No Voting Rights.  Prior to the exercise of the Warrants, no
Holder of a Warrant Certificate, in its capacity as such, shall be entitled to
any rights of a stockholder of the Company, including the right to vote or to
consent with respect to any matter.


 


SECTION 7.02.  Right of Action.  All rights of action in respect of this
Agreement are vested in the Holders of the Warrants, and any Holder of
Warrants, without the consent of the Holder of any other Warrant, may, on such
Holder’s own behalf and for such Holder’s own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, such Holder’s right to
exercise or exchange such Holder’s Warrants in the manner provided in this
Agreement or any other obligation of the Company under this Agreement.


 


SECTION 7.03.  Agent. 
The Holders of the Warrants appoint Z Investment Holdings, LLC as their
agent and authorize Z Investment Holdings, LLC to bind, and take all actions in
connection with this Agreement on behalf of, the Holders which may be taken by
the Agent as set forth in this Agreement.  
The Company shall be 


 


28

















 


entitled to rely on direction by Z Investment Holdings, LLC on behalf
of any Holder for the powers granted to the Agent herein.


 


ARTICLE VIII


 


Representations and Warranties


 


SECTION 8.01. 
Representations and Warranties of the Company.  The Company hereby represents and warrants
that, as of the Issuance Date:


 


(a) Existence, Power
and Ownership.  It is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.


 


(b) Authorization.  It has the corporate power and authority to
enter into this Agreement and to perform its obligations under, and consummate
the transactions contemplated by, this Agreement and has by proper action duly
authorized the execution and delivery of this Agreement.


 


(c) No Conflicts.  None of the execution and delivery of this
Agreement, the consummation of the transactions contemplated herein or the
performance of and compliance with the terms and provisions hereof will:  (i) violate or conflict with any
provision of its Certificate of Incorporation or By-laws; (ii) violate any
law, regulation (including Regulation G, T, U or X), order, writ, judgment,
injunction, decree or permit applicable to it; (iii) violate or materially
conflict with any contractual provisions of, or cause an event of default or
give rise to any right of acceleration under, any indenture, loan agreement,
mortgage, deed of trust, contract or other agreement or instrument to which it
is a party or by which it or any of its properties may be bound; or (iv) result
in or require the creation of any lien, security interest or other charge or
encumbrance (other than those contemplated in or in connection with this
Agreement) upon or with respect to its properties.


 


(d) Consents.  Subject to the requirements of the HSR Act
and, in the case of any Warrants exercisable for Series A Preferred Stock,
receipt of the Required Stockholder Approval, no consent, approval,
authorization or order of, or filing, registration or qualification with, any
court or governmental authority or other Person is required in connection with
the execution, delivery or performance of this Agreement or the Warrants.


 


(e) Enforceable
Obligations.  This Agreement has been
duly executed and delivered by the Company and assuming due authorization, execution
and delivery hereof by the Initial Warrant Holder and the Agent, constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles.


 


(f) Capitalization.  As of the date hereof, the Company’s
authorized capital stock consists of 150,000,000 shares of Common Stock and
5,000,000 shares of Preferred 


 


29

















 


Stock (none of which are issued and
outstanding).  As of the Issuance Date,
32,107,425 shares of Common Stock were issued and outstanding (excluding any
shares held in treasury), and 3,220,617 stock options and other Common Stock
Equivalents were issued and outstanding under the Company’s restricted stock
and stock option plans.  There are no
Voting Securities authorized or outstanding other than the Common Stock and
there are no other classes of capital stock of the Company outstanding.  The outstanding shares of Common Stock are
duly authorized, validly issued, fully paid and non-assessable.  There are no preemptive rights other than as
set forth in Section 5.06 of this Agreement or, except as set forth above
and except for the Warrants, other outstanding rights, options, warrants,
conversion rights or agreements or commitments of any character relating to the
Company’s authorized and issued, unissued or treasury shares of capital stock,
and the Company has not issued any debt securities, other securities, rights or
obligations that are currently outstanding and convertible into or exchangeable
for, or giving any Person a right to subscribe for or acquire, capital stock of
the Company.  The representations and
warranties set forth in this Section 8.01(f) are a material
inducement to the Initial Warrant Holder to enter into this Agreement, and to
the extent the representations and warranties set forth in this Section 8.01(f) are
inaccurate in any respect, the number of shares of Underlying Stock for which
the B-Warrants are exercisable will be equitably adjusted upward (but not
downward), if necessary, such that the number of shares of Common Stock for
which the A-Warrants and the B-Warrants were exercisable, as of the Issuance
Date (assuming for this purpose that the B-Warrants were exercisable in full
for Common Stock as of the Issuance Date), equals, in the aggregate, a number
of shares of Common Stock equal to 25.0% of the amount equal to (x) the
sum, without duplication, of the number of shares of Common Stock outstanding
as of the Issuance Date (excluding any treasury shares) and the number of
shares of Common Stock into which Common Stock Equivalents outstanding as of
the Issuance Date (including the Warrants (assuming for this purpose that the
B-Warrants were exercisable in full for Common Stock as of the Issuance Date))
were exercisable less (y) 2,133,992.


 


(g) Board Approvals.  The Board has granted all necessary approvals
under the Company’s constituent documentation and the Delaware General
Corporation Law with respect to the acquisition and exercise of the Warrants by
the Initial Warrant Holder, including for purposes of Section 203 of the
Delaware General Corporation Law.


 


(h) No Registration
Requirement.  None of the Company,
its subsidiaries or any of their respective Affiliates has directly, or through
any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any “security” (as defined in the
Securities Act) that is or would be integrated with the issuance of the
Warrants in a manner that would require the registration under the Securities
Act of the Warrants or (ii) engaged in any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) in connection with the offering of the Warrants or in any
manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.  Assuming the
accuracy of the representations and warranties of the Holders in Section 8.02
hereof, it is not necessary in connection with the offer, sale and delivery of
the Warrants to the Initial Warrant Holder in the manner contemplated herein to
register any of the Warrants under the Securities Act.


 


30
















 


SECTION 8.02. 
Representations and Warranties of the Holders.  Each Holder, severally and not jointly,
hereby represents and warrants that:


 


(a) Investment
Intent.  Such Holder acknowledges
that neither the issuance nor sale of the Warrants, nor the issuance of the
shares of Common Stock or Series A Preferred Stock issuable upon the
exercise thereof, have been registered under the Securities Act or under any
state securities laws.  Such Holder (i) is
acquiring the Warrants and the shares of Common Stock or Series A
Preferred Stock issuable upon the exercise thereof pursuant to an exemption
from registration under the Securities Act solely for investment with no
present intention to distribute any of the securities to any person in
violation of the Securities Act or any other applicable securities laws and (ii) will
not sell or otherwise dispose of any of the Warrants or the shares of Common
Stock or Series A Preferred Stock issuable upon the exercise thereof,
except in compliance with the registration requirements or exemption provisions
of the Securities Act and any other applicable securities laws.


 


(b) Accredited
Investor Status.  (i) Such
Holder is an “accredited investor” as such term is defined in Rule 501(a) promulgated
under the Securities Act whose knowledge and experience in financial and
business matters are such that such Holder is capable of evaluating the merits
and risks of its investment in the Warrants or the shares of Common Stock or Series A
Preferred Stock issuable upon the exercise thereof and (ii)(A) such Holder’s
financial situation is such that it can afford to bear the economic risk of
holding the Warrants or the shares of Common Stock or Series A Preferred
Stock issuable upon the exercise thereof for an indefinite period of time, (B) such
Holder can afford to suffer complete loss of its investment in the Warrants or
the shares of Common Stock or Series A Preferred Stock issuable upon the
exercise thereof, (C) the Company has made available to such Holder all
documents and information that such Holder has requested relating to an
investment in the Company and (D) such Holder has had adequate
opportunity to ask questions of, and receive answers from, the Company as well
as the Company’s officers, employees, agents and other representatives
concerning the Company’s business, operations, financial condition, assets,
liabilities and all other matters relevant to such Holder’s investment in the
Warrants or the shares of Common Stock or Series A Preferred Stock
issuable upon the exercise thereof.


 


ARTICLE IX


 


Covenants


 


SECTION 9.01.  Reservation of Common Stock for Issuance
on Exercise of Warrants.  The Company
covenants that it will at all times reserve and keep available, free from
preemptive rights and solely for the purpose of issue upon exercise of the
Warrants as herein provided, (i) out of its authorized but unissued Common
Stock, such number of shares of Common Stock as shall then be issuable upon the
exercise of all Warrants issuable hereunder (which, in the case of the
B-Warrants, for the avoidance of doubt, shall be from and after the date of the
Required Stockholder Approval), which shall include, for the avoidance of
doubt, such number of shares of Common Stock as shall then be issuable upon the
conversion of the Series A Preferred Stock then issuable, 


 


31

















 


if any, upon the exercise of all Warrants issuable hereunder; and (ii) out
of its authorized but unissued preferred stock, par value $0.01 per share, such
number of shares of Series A Preferred Stock as shall then be issuable
upon the exercise of all Warrants issuable hereunder.  The Company will not issue Series A
Preferred Stock to any Persons other than the Warrant Holders.  The Company covenants that all shares of
Common Stock and Series A Preferred Stock issuable upon exercise of the
Warrants and, with respect to shares of Series A Preferred Stock, all
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, shall, upon such issue, be duly and validly issued and fully paid and
non-assessable.


 


SECTION 9.02.  Notice of Dividends.  At any time when the Company declares any
dividend on its Common Stock, it shall give notice to the Holders of all the
then outstanding Warrants of any such declaration not less than 15 days
prior to the related record date for payment of the dividend so declared.


 


SECTION 9.03.  HSR Act Compliance.  If the Agent or any Holder determines that a
notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the “HSR
Act”), is required in connection with the exercise of any Warrants by any
Holder, the Company shall reasonably cooperate with such Holder by (i) promptly
effecting all necessary notifications and other filings under the HSR Act that
are required to be made by the Company and (ii) responding as promptly as
reasonably practicable to all inquiries or requests received from the United
States Federal Trade Commission (the “FTC”), the Department of Justice (“DOJ”)
or any other governmental authority in connection with such notifications and
other filings.  For the avoidance of
doubt, nothing in this Section 9.03 shall require that the Company or any
of its subsidiaries commit to any divestiture, license or hold separate or
similar arrangement with respect to the business, assets or properties of the
Company or any of its subsidiaries.  Any
such notifications and responses by the Company will be in full compliance with
the requirements of the HSR Act.  The
Company shall, to the extent legally permissible, keep the Agent and such
Holder reasonably apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC, the DOJ or such
other governmental authority.  The
Company and the Agent shall share equally the filing fees in connection with
the above filings, and shall otherwise each bear their respective costs and
expenses in connection with the preparation of such filings and responses to
inquires or requests.


 


SECTION 9.04.  Board Representation.  (a)  On the Issuance Date, the Initial
Warrant Holder shall have the right to designate two directors (each, a “GGC
Appointee”) who shall be appointed to the Board.  The initial GGC Appointees shall be Stefan L.
Kaluzny and Peter Morrow. As of the Issuance Date, the number of seats on the
Board shall be set at eight, which shall consist on the Issuance Date of the
initial GGC Appointees, Richard C. Breeden, James M. Cotter, Yuval Braverman,
John B. Lowe, Jr. and Charles M. Sonsteby, and one seat shall be
vacant.  The Initial Warrant Holder may
propose an additional candidate for election to the Board who meets all
relevant standards for independence to fill such initial vacancy.  If that candidate is reasonably acceptable to
the Nominating Committee of the Board and a majority of the independent 


 


32

















 


members of the Board, that candidate will be promptly elected to the
Board following such proposal by the Initial Warrant Holder (and such candidate
shall not be deemed to be a GGC Appointee for purposes hereof).  For the period from the Issuance Date to the
date immediately following the next annual meeting of shareholders of the
Company following the Issuance Date, the size of the Board shall be maintained
at eight directors. John B. Lowe, Jr. shall not stand for reelection at
the next annual meeting of shareholders of the Company following the Issuance
Date, and on the date immediately following such annual meeting, the number of
seats on the Board shall be set at seven (provided that if the initial
vacancy described above has not been filled with a director meeting all
applicable independence requirements at such time, John B. Lowe, Jr. shall
continue to serve on the Board until such time as such director is appointed to
the Board).  Notwithstanding the
foregoing, if for any reason the size of the Board is increased above eight
seats prior to the date immediately following the next annual meeting of
shareholders of the Company following the Issuance Date, or above seven seats
thereafter, and any additional vacant seat created by such increase is filled
by the Board with a director that is neither proposed nor approved by the
Initial Warrant Holder or the GGC Appointees, then the Initial Warrant Holder
shall be entitled to appoint one additional director to the Board, which
director shall also be deemed to be a GGC Appointee for purposes hereof (it
being understood that no increase in the size of the Board and filling of any
vacancy created by such increase that would give rise to a right of the Initial
Warrant Holder to appoint an additional GGC Appointee in accordance with the
foregoing shall be made unless the Certificate of Incorporation then permits
such number of additional seats as is necessary to allow for the additional GGC
Appointee if required pursuant to this Section 9.04(a)).


 


(b)  Subject to Sections 9.04(d) and
9.04(f), in connection with each meeting of stockholders at which directors are
to be elected to serve on the Board, the Company shall take all necessary steps
to nominate each GGC Appointee (or such alternative persons who are proposed by
the Initial Warrant Holder and notified to the Company on or prior to any date
set forth in the Company’s constituent documents or applicable law for Board
nominees) and to use its reasonable best efforts to cause the Board to
unanimously recommend that the stockholders of the Company vote in favor of
each GGC Appointee for election to the Board. 
If, for any reason, a candidate designated as a GGC Appointee is
determined to be unqualified to serve on the Board because such appointment
would constitute a breach of the Board’s fiduciary duties or applicable law,
the Initial Warrant Holder shall have the right to designate an alternative GGC
Appointee to be so appointed and the provisions of this Section 9.04(b) shall
apply, mutatis mutandis, to such alternative
GGC Appointee.


 


(c)  Each appointed or elected GGC
Appointee will hold his or her office as a director of the Company for such
term as is provided in the Company’s constituent documents or until his or her
death, resignation or removal from the Board or until his or her successor has
been duly elected and qualified in accordance with the provisions of this
Agreement, the Company’s constituent documents and applicable law.  If any GGC Appointee ceases to serve as a
director of the Company for any reason during his or her term, the Company will
use its reasonable best efforts to cause the Board to fill the vacancy created
thereby with a replacement designated by the Initial Warrant Holder.


 


33

















 


(d)  The Initial Warrant Holder shall
have the right to designate two GGC Appointees (or three GGC Appointees if
applicable as a result of an increase in the size of the Board pursuant to Section 9.04(a))
pursuant to Sections 9.04(a), 9.04(b) and 9.04(c) until such
time as the Initial Warrant Holder has sold 33 1/3% of the Underlying
Stock issuable in respect of the Warrants on the Issuance Date (or Warrants
exercisable for such percentage of Underlying Stock), to any Person or Persons
other than Affiliates of the Initial Warrant Holder.  Thereafter, the Initial Warrant Holder shall
have the right to designate one GGC Appointee (or two GGC Appointees if
applicable as a result of an increase in the size of the Board pursuant to Section 9.04(a))
pursuant to Sections 9.04(a), 9.04(b) and 9.04(c) until such
time as the Initial Warrant Holder has sold 66 2/3% of the Underlying
Stock issuable in respect of the Warrants on the Issuance Date (or Warrants
exercisable for such percentage of Underlying Stock), to any Person or Persons
other than Affiliates of the Initial Warrant Holder.  Thereafter, the right of the Initial Warrant
Holder to designate a GGC Appointee hereunder shall terminate.


 


(e)  The Company shall provide the same
reimbursement of expenses incurred by each GGC Appointee, and the same rights
and benefits of indemnity to each GGC Appointee, as are provided to other
non-employee directors on the Board; provided that the GGC Appointees
shall not be provided any retainers, including meeting fees, or other cash
compensation or equity compensation for their service on the Board or any
committee thereof. The Company acknowledges that certain directors (including
the GGC Appointees) may have certain rights to indemnification, advancement of
expenses and/or insurance provided by other sources with respect to such
directors’ association with the Company and its subsidiaries (“Other Indemnitors”).  Notwithstanding the existence of any Other
Indemnitor with respect to any director, the Company shall be the indemnitor of
first resort (i.e., the Company’s obligations for indemnification and
expense advancement to a director are primary and any obligations of any Other
Indemnitor to advance expenses or to provide indemnification for the same
expenses or liabilities incurred by a director are secondary), with respect to
any such directors’ association with the Company and its subsidiaries. The Other
Indemnitors shall be third party beneficiaries of the terms of this Section 9.04(e).


 


(f)  Nothing in this Section 9.04
shall prevent the Board from acting in accordance with its fiduciary duties or
applicable law or from acting in good faith in accordance with its constituent
documents, while giving due consideration to the intent of this Agreement.  The Board shall have no obligation to appoint
or nominate any GGC Appointee upon written notice that such appointment or
nomination would violate applicable law or result in a breach by the Board of
its fiduciary duties to its stockholders; provided, however,
that the foregoing shall not affect the right of the Initial Warrant
Holder to designate an alternate GGC Appointee.


 


SECTION 9.05.  Stockholder Approval.  The Company shall call a special meeting of
its stockholders as promptly as reasonably practicable following the Issuance
Date (but in any event not later than the first annual meeting of the Company’s
stockholders to be held after the Issuance Date) in order to obtain the
Required Stockholder Approval.  The Board
shall unanimously recommend to the Company’s stockholders that such
stockholders approve the issuance of shares of Common Stock 


 


34

















 


upon exercise of the B-Warrants (and, in the case of the A-Warrants,
the issuance of any Excess Shares upon exercise of the A-Warrants) as set forth
herein.  In connection with such meeting,
the Company shall promptly prepare (and the Agent and the Initial Warrant
Holder will reasonably cooperate with the Company to prepare, including by
furnishing the Company with all reasonably necessary information) and file with
the SEC a preliminary proxy statement, shall use its reasonable best efforts to
solicit proxies for such stockholder approval and shall use its reasonable best
efforts to respond to any comments of the SEC or its staff and to cause a
definitive proxy statement related to such stockholders’ meeting to be mailed
to the Company’s stockholders. The Company shall notify the Agent promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to such proxy statement or for
additional information and will supply the Agent with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to such proxy
statement.  In all circumstances, the
Company shall provide the Agent with an opportunity to review, and provide
reasonable comments to the Company with respect to, any preliminary proxy
statement prepared pursuant to this Section 9.05 and all supplements and
amendments thereto prior to filing of the same with the SEC.  If at any time prior to such stockholders’
meeting there shall occur any event that is required to be set forth in an
amendment or supplement to the proxy statement, the Company shall as promptly
as reasonably practicable prepare and mail to its stockholders such an
amendment or supplement.  Each of the
Agent and the Company agrees to promptly correct any information provided by it
or on its behalf for use in the proxy statement if and to the extent that such
information shall have become false or misleading in any material respect, and the
Company shall as promptly as reasonably practicable prepare and mail to its
stockholders an amendment or supplement to correct such information to the
extent required by applicable law.  In
the event that the Required Stockholder Approval is not obtained at such
special meeting, the Company shall include a proposal to approve (and the Board
will unanimously recommend approval of) such issuance and, if any Warrants
shall have been exercised for Series A Preferred Stock, to approve the
conversion of the Series A Preferred Stock into Common Stock, at a meeting
of its stockholders no less than once per each annual period until such
approval is obtained (but the Company shall not be required to do so more than
three times).  At each such meeting at
which the Required Stockholder Approval is sought, each of the Company and the
Agent and the Initial Warrant Holder (to the extent the Agent or the Initial
Warrant Holder or any of their Affiliates then hold shares of Common Stock)
shall use reasonable best efforts to obtain such Required Stockholder Approval,
and the Agent and the Initial Warrant Holder shall (to the extent permitted by
the rules of the New York Stock Exchange) vote or cause to be voted any
Common Stock they or their Affiliates then hold in favor of such approval and,
if requested by the Company, shall deliver proxies in respect of such Common
Stock to an agent designated by the Company for such purpose.  The Company shall also call a special meeting
of stockholders as promptly as reasonably practicable in the event that (i) the
Company does not have a sufficient number of authorized shares of Common Stock
to issue Common Stock upon exercise of all unexercised Warrants and to effect
the conversion of any issued Series A Preferred Stock into Common Stock,
in which case stockholder approval to amend the Certificate of Incorporation to
increase the number of authorized shares of 


 


35

















 


Common Stock shall be sought, or (ii) any or all of the Warrants
are exercised for Series A Preferred Stock, in which case stockholder
approval for conversion of the Series A Preferred Stock into Common Stock
shall be sought, in each case in accordance with the voting requirements set
forth in the Company’s by-laws. In the event of a special meeting called
pursuant to clause (i) or (ii) in the immediately preceding sentence,
the Company shall use its commercially reasonable efforts to obtain such
stockholder approval and the Holders shall (to the extent permitted by the rules of
the New York Stock Exchange) vote any Common Stock they then hold in favor of
such approval.


 


SECTION 9.06.  Certain Other Events.  If any event occurs as to which the
provisions of Article V are not strictly applicable or, if strictly
applicable, would not fairly protect the rights of the Warrant Holders in
accordance with the essential intent and principles of such provisions, then
the Board shall make such adjustments in the application of such provisions, in
accordance with such essential intent and principles, as shall be reasonably
necessary, in the good faith judgment of the disinterested members of the
Board, to protect such purchase rights as aforesaid.


 


SECTION 9.07.  Transfers.  Subject to compliance with applicable Federal
or state securities laws, Common Stock and Series A Preferred Stock
issuable upon exercise of the Warrants shall be freely transferable; provided,
however, that Holders shall not transfer, individually or acting in
concert with other Holders, Common Stock representing (or Series A
Preferred Stock convertible into Common Stock representing, or any combination
thereof representing) 15% or more of the then-outstanding number of shares of
Common Stock to any one “person” or “group” (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act) without the prior written
approval of the Board.  This Section 9.07
shall not apply to transfers of Common Stock and Series A Preferred Stock
made pursuant to a bona fide underwritten public offering or open-market
transactions.


 


ARTICLE X


 


Miscellaneous


 


SECTION 10.01.  Tax Matters.  (a)  The Company shall pay all transfer,
stamp and other similar taxes that may be imposed in respect of the issuance or
delivery of the Warrants or in respect of the issuance or delivery by the
Company of any securities upon exercise of the Warrants with respect
thereto.  The Company shall not pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock or Series A Preferred
Stock or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise or purchase of a Warrant, and the
Holder shall be responsible for any such tax or other charge.


 


(b)  The Company’s  best estimate of the amount to be allocated
to the A-Warrants and the B-Warrants issued pursuant to this Agreement, based
on a preliminary valuation of such Warrants by American Appraisal, is
approximately 9.1 % and 6.7 %, respectively, of the stated principal amount of
the senior secured term loan facility 


 


36

















 


agreement dated May 10, 2010, among the Company, as borrower, the
lenders party thereto and Z Investment Holdings, LLC, as administrative agent
(such term loan facility, the “Loan”). The final amount to be allocated
to the A-Warrants and the B-Warrants, respectively, issued pursuant to this
Agreement shall be equal to the final valuation of such Warrants by American
Appraisal; provided, however, that at least 10 days prior to such
valuation becoming final, the Company shall provide the Initial Warrant Holder
with a reasonable opportunity to review and comment on such valuation. Promptly
upon receipt by the Company of the final valuation of the Warrants by such
appraiser, but in no event later than 45 Business Days from the date of this
Agreement, the Company shall deliver to the Initial Warrant Holder notice of
the amount to be allocated to each tranche of Warrants (the “Allocation”),
which Allocation shall be binding on the Company and the Initial Warrant
Holder.  The Company and the Initial
Warrant Holder agree not to take any position for U.S. Federal income tax
purposes with regard to the value of the Warrants that is inconsistent with the
Allocation.  The agreements contained in this
Section 10.01(b) shall remain in full force and effect
notwithstanding (i) any termination of this Agreement or any underwriting
or agency agreement, (ii) the receipt by the Initial Warrant Holder of
such Warrants or (iii) the sale or successive resales of the Registered
Securities.


 


SECTION 10.02.  Surrender of Certificates.  Any Warrant Certificate surrendered for
exercise or purchase shall be promptly canceled by the Company and shall not be
reissued by the Company.  The Company
shall destroy such canceled Warrant Certificates.


 


SECTION 10.03.  Mutilated, Destroyed, Lost and Stolen
Warrant Certificates.  (a)  If (i) any
mutilated Warrant Certificate is surrendered to the Company or (ii) the
Company receives evidence to its satisfaction of the destruction, loss or theft
of any Warrant Certificate, and there is delivered to the Company such
appropriate affidavit of loss, applicable processing fee and a corporate bond
of indemnity as may be reasonably required by the Company to save it harmless,
then, in the absence of notice to the Company that such Warrant Certificate has
been acquired by a bona fide purchaser, the Company shall execute and deliver,
in exchange for any such mutilated Warrant Certificate or in lieu of any such
destroyed, lost or stolen Warrant Certificate, a new Warrant Certificate of
like tenor and for a like aggregate number of Warrants.


 


(b)  Upon the issuance of any new
Warrant Certificate under this Section 10.03, the Company shall pay any
taxes or other governmental charges that may be imposed in relation thereto and
other expenses in connection therewith.


 


(c)  Every new Warrant Certificate
executed and delivered pursuant to this Section 10.03 in lieu of any
destroyed, lost or stolen Warrant Certificate shall constitute an original contractual
obligation of the Company, whether or not the destroyed, lost or stolen Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled
to the benefits of this Agreement equally and proportionately with any and all
other Warrant Certificates duly executed and delivered hereunder.


 


37





















 


(d)  The provisions of this Section 10.03
are exclusive and shall preclude (to the extent lawful) all other rights or
remedies with respect to the replacement of mutilated, destroyed, lost or
stolen Warrant Certificates.


 


SECTION 10.04.  Removal of Legends.  In the event (a) the shares of
Underlying Stock are registered under the Securities Act or (b) the
Company is presented with an opinion of counsel reasonably satisfactory to the
Company that transfers of shares of Underlying Stock do not require
registration under the Securities Act, the Company shall direct its transfer
agent, and the transfer agent shall, upon surrender by a Holder of its certificates
evidencing such shares of Underlying Stock to the transfer agent, exchange such
certificates for certificates without the legends referred to in Section 3.06(e).


 


SECTION 10.05. 
Notices.  Any notice,
demand or delivery to the Company or the Agent authorized by this Agreement
shall be sufficiently given or made when mailed if sent by first-class mail,
postage prepaid, addressed to the Company or the Agent, as applicable, as
follows:


 


If to the Company:


 


Zale Corporation


901 W. Walnut Hill Lane


Irving, TX 75038


Fax:  972-580-5547


Attention:  General Counsel


 


With a copy to:


 


Cravath, Swaine & Moore LLP

825 Eighth Avenue

New York, NY 10019

Fax:  212-474-3700

Attention:  Eric L. Schiele


 


If to the Agent:


 


Z Investment Holdings, LLC

c/o Golden Gate Private Equity, Inc.


One Embarcadero Center, 39th Floor

San Francisco, CA 94111

Attention:  Stefan Kaluzny

Fax:  415-983-2701


 


38

















 


With a copy to:


 


Kirkland & Ellis LLP

300 North LaSalle

Chicago, IL  60654

Fax:  312-862-2200

Attention:  Gary M. Holihan P.C.


 


or such other address as shall have been
furnished to the party giving or making such notice, demand or delivery.


 


Any notice required to be given by the
Company to the Holders pursuant to this Agreement shall be made by mailing by
registered mail, return receipt requested, to the Holders at their respective
addresses shown on the register of the Company. 
Any notice that is mailed in the manner herein provided shall be conclusively
presumed to have been duly given when mailed, whether or not the Holder
receives the notice.


 


SECTION 10.06.  Applicable Law.  This Agreement and each Warrant issued
hereunder and all rights arising hereunder shall be governed by the internal
laws of the State of New York.


 


SECTION 10.07.  Persons Benefiting.  This Agreement shall be binding upon and
inure to the benefit of the Company and the Agent, and their successors,
assigns, beneficiaries, executors and administrators, and the Holders from time
to time of the Warrants.  Except as
otherwise expressly provided herein, nothing in this Agreement is intended or
shall be construed to confer upon any Person, other than the Company, the Agent
and the Holders, any right, remedy or claim under or by reason of this
Agreement or any part hereof.


 


SECTION 10.08.  Counterparts.  This Agreement may be executed in any number
of counterparts, including by means of facsimile and/or electronic mail
transmission, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.


 


SECTION 10.09.  Amendments.  Neither this Agreement nor any provisions
hereof shall be waived, modified, changed, discharged or terminated other than
in a writing signed by each of the Company and the Agent.  For the avoidance of doubt, with the written
consent of the Agent, the Company may from time to time (i) supplement or
amend this Agreement to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with regard to matters
or questions arising hereunder and (ii) modify the Agreement for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or modifying in any manner the rights
of the Holders hereunder.


 


39

















 


SECTION 10.10.  Headings.  The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience and shall
not control or affect the meaning or construction of any of the provisions
hereof.


 


SECTION 10.11.  Entire Agreement.  This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.  In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this Agreement and any
schedules or attachments hereto, the terms and conditions contained in this
Agreement shall take precedence.


 


SECTION 10.12.  Limitation of Liability.  No party to this Agreement shall be liable to
any other party for any consequential, indirect, incidental or special damages
under any provision of this Agreement or for any consequential, indirect,
punitive, incidental or special damages arising out of any act or failure to
act hereunder even if that party has been advised of or has foreseen the
possibility of such damages.


 


40
















 


IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed, as of the day and year first above written.


 


	
   

  	
  ZALE
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  /s/
  Matthew W. Appel

  
	
   

  	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  



 


41

















 


	
   

  	
  Z INVESTMENT HOLDINGS, LLC,

  in its capacities as Agent and Initial

  Warrant Holder hereunder

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  /s/
  Peter Morrow

  
	
   

  	
   

  	
  Name:
  Peter Morrow

  
	
   

  	
   

  	
  Title:
  Authorized Person

  



 


42

















 


EXHIBIT A


 


FORM OF FACE OF A-WARRANT
CERTIFICATE


 


THESE WARRANTS MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF THE WARRANT AND REGISTRATION
RIGHTS AGREEMENT REFERRED TO BELOW. THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.  SUCH SECURITIES MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT
AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010, BY AND AMONG
ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z INVESTMENT
HOLDINGS, LLC, AS AGENT.  A COPY OF SUCH
WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE OFFICES OF THE
COMPANY.


 


WARRANTS TO PURCHASE COMMON STOCK OF ZALE
CORPORATION


 


	
  No.

  	
   

  	
  Certificate
  for
                      
  Warrants

  



 


This certifies that [INSERT NAME OF HOLDER],
or registered assigns, is the registered holder of the number of Warrants set
forth above.  Each Warrant entitles the
holder thereof (a “Holder”), subject to the provisions contained herein
and in the Warrant Agreement (as defined below), to purchase from Zale
Corporation, a Delaware corporation (the “Company”), one share of the
Company’s common stock, par value $0.0l per share (“Common Stock”),
subject to adjustment upon the occurrence of certain events specified herein
and in the Warrant Agreement, at the exercise price of $2.00 per share (the “Exercise
Price”), subject to adjustment upon the occurrence of certain events
specified herein and in the Warrant Agreement.


 


This Warrant Certificate is issued under and
in accordance with the Warrant and Registration Rights Agreement, dated as of May 10,
2010 (the “Warrant Agreement”), by and among the Company, the Initial
Warrant Holder and the Agent, and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which terms and provisions the
Holder of this Warrant Certificate consents by acceptance hereof.  The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof, including the representations and
warranties of the Holder pursuant to Section 8.02 of the Warrant
Agreement.  Reference is hereby made to
the Warrant Agreement for a full statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Holders of the Warrants and the Agent.  Capitalized 


 


A-1

















 


terms used but not otherwise
defined herein shall have the meaning ascribed to such terms in the Warrant
Agreement.


 


This Warrant Certificate shall terminate and
be void as of the close of business on May 10, 2017 (the “Expiration
Date”).


 


As provided in the Warrant Agreement and
subject to the terms and conditions therein set forth, the Warrants shall be
exercisable in whole or in part from time to time on any Business Day through
and including the Expiration Date.


 


The Exercise Price and the number of shares
of Common Stock issuable upon the exercise of each Warrant are subject to
adjustment as provided in the Warrant Agreement.


 


All shares of Common Stock issuable by the
Company upon the exercise of the Warrants shall, upon such issue, be duly and
validly issued and fully paid and non-assessable.


 


Under certain circumstances, as set forth in
the Warrant Agreement, the Warrants are exercisable for Series A Preferred
Stock of the Company.


 


In order to exercise a Warrant, the
registered holder hereof must surrender this Warrant Certificate at the
principal place of business of the Company, with the Exercise Subscription Form on
the reverse hereof duly executed by the Holder hereof, with signature
guaranteed as therein specified, together with any required payment in full of
the Exercise Price then in effect for the share(s) of Underlying Stock as
to which the Warrant(s) represented by this Warrant Certificate is (are)
submitted for exercise, all subject to the terms and conditions hereof and of
the Warrant Agreement.  Any such payment
of the Exercise Price shall be by bank wire transfer in immediately available
funds or on a cashless basis as described in Section 3.04(b) of the
Warrant Agreement.


 


The Company shall pay all transfer, stamp and
other similar taxes that may be imposed in respect of the issuance or delivery
of the Warrants or in respect of the issuance or delivery by the Company of any
securities upon exercise of the Warrants. 
The Company may require payment of a sum sufficient to pay certain
taxes, assessments or other charges for which the Holder is responsible
pursuant to the Warrant Agreement.


 


No service charge shall be made to a Holder
for any registration or exchange of the Warrant Certificates, and the Company
shall pay any taxes or other governmental charges payable in connection
therewith.


 


Each taker and holder of this Warrant
Certificate by taking or holding the same, consents and agrees that this
Warrant Certificate when duly endorsed in blank shall be deemed negotiable and
that when this Warrant Certificate shall have been so endorsed, the holder
hereof may be treated by the Company and all other Persons dealing with this
Warrant Certificate as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby.


 


A-2

















 


This Warrant Certificate and all rights
arising hereunder shall be governed by the internal laws of the State of New York.


 


This Warrant Certificate and the Warrant
Agreement are subject to amendment as provided in the Warrant Agreement.


 


Copies of the Warrant Agreement are on file at the
principal place of business of the Company and may be obtained by writing to
the Company at the following address:


 


Zale Corporation

901 W. Walnut Hill Lane

Irving, TX 75038

Fax:  972-580-5547

Attention:  General Counsel



Dated:


 


 


	
   

  	
  ZALE
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


A-3

















 


FORM OF REVERSE OF A-WARRANT CERTIFICATE



EXERCISE SUBSCRIPTION FORM


 


(To be executed only upon exercise of Warrant)


 


To:                              Zale
Corporation (the “Company”)


 


The undersigned irrevocably exercises
                    
of the Warrants for the purchase of one share (subject to adjustment in
accordance with the Warrant Agreement) of Common Stock, par value $0.01 per
share, of the Company, for each Warrant represented by the Warrant Certificate
and herewith makes payment of $                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Common Stock deliverable upon the
exercise of such Warrants be registered in the name and delivered at the address
specified below.


 


Date:


 


	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(1)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				



 


Securities to be issued to:


 


Please insert social
security or identifying number:


 


Name:


 


Street Address:


 


City, State and Zip Code:


 






(1) The
signature must correspond with the name as written upon the face of the within
Warrant Certificate in every particular, without alteration or any change
whatsoever, and must be guaranteed by a financial institution.


 


A-4

















 


FORM OF REVERSE OF A-WARRANT CERTIFICATE



EXERCISE SUBSCRIPTION FORM


 


(To be executed only upon exercise of Warrant
for Series A Preferred Stock in the event the Warrant is then exercisable
for Series A Preferred Stock in order to comply with Section 312.03
of the New York Stock Exchange Listed Company Manual)


 


To:                              Zale
Corporation (the “Company”)


 


The undersigned irrevocably exercises
                    
of the Warrants for the purchase of
             
shares of Series A Preferred Stock, par value $0.01 per share, of the
Company, for each Warrant represented by the Warrant Certificate and herewith
makes payment of
$                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Series A Preferred Stock
deliverable upon the exercise of such Warrants be registered in the name and
delivered at the address specified below. 
Because the Warrant is exercisable for Series A Preferred Stock in
order to comply with Section 312.03 of the New York Stock Exchange Listed
Company Manual, the undersigned hereby irrevocably elects to receive the Series A
Preferred Stock in lieu of Common Stock.


 


Date:


 


	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(2)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				



 






(2) The signature must
correspond with the name as written upon the face of the within Warrant
Certificate in every particular, without alteration or any change whatsoever,
and must be guaranteed by a financial institution.


 


A-5

















 


Securities to be issued to:


 


Please insert social
security or identifying number:


 


Name:


 


Street Address:


 


City, State and Zip Code:


 


A-6
















 


EXHIBIT B


 


FORM OF FACE OF B-WARRANT
CERTIFICATE


 


THESE WARRANTS MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF THE WARRANT AND REGISTRATION
RIGHTS AGREEMENT REFERRED TO BELOW. THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.  SUCH SECURITIES MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT
AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010, BY AND AMONG
ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z INVESTMENT
HOLDINGS, LLC, AS AGENT.  A COPY OF SUCH
WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE OFFICES OF THE
COMPANY.


 


WARRANTS TO PURCHASE COMMON STOCK OF ZALE
CORPORATION


 


	
  No.

  	
   

  	
  Certificate
  for
                      
  Warrants

  



 


This certifies that [INSERT NAME OF HOLDER],
or registered assigns, is the registered holder of the number of Warrants set
forth above.  Each Warrant entitles the
holder thereof (a “Holder”), subject to the provisions contained herein
and in the Warrant Agreement (as defined below), to purchase from Zale
Corporation, a Delaware corporation (the “Company”), one share of the
Company’s common stock, par value $0.0l per share (“Common Stock”),
subject to adjustment upon the occurrence of certain events specified herein
and in the Warrant Agreement, at the exercise price of $2.00 per share (the “Exercise
Price”), subject to adjustment upon the occurrence of certain events
specified herein and in the Warrant Agreement.


 


This Warrant Certificate is issued under and
in accordance with the Warrant and Registration Rights Agreement, dated as of May 10,
2010 (the “Warrant Agreement”), by and among the Company, the Initial
Warrant Holder and the Agent, and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which terms and provisions the
Holder of this Warrant Certificate consents by acceptance hereof.  The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof, including the representations and
warranties of the Holder pursuant to Section 8.02 of the Warrant
Agreement.  Reference is hereby made to
the Warrant Agreement for a full statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Holders of the Warrants and the Agent.  Capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to such terms in the Warrant
Agreement.


 


B-1

















 


This Warrant Certificate shall terminate and
be void as of the close of business on May 10, 2017 (the “Expiration
Date”).


 


As provided in the Warrant Agreement and
subject to the terms and conditions therein set forth, the Warrants shall be
exercisable in whole or in part from time to time on any Business Day beginning
on the day immediately following the earlier to occur of (i) the Vote Date
and (ii) the date of the first annual meeting of the Company’s
stockholders to be held after the Issuance Date, and ending on the Expiration
Date.


 


The Exercise Price and the number of shares
of Common Stock issuable upon the exercise of each Warrant are subject to
adjustment as provided in the Warrant Agreement.


 


All shares of Common Stock issuable by the
Company upon the exercise of the Warrants shall, upon such issue, be duly and
validly issued and fully paid and non-assessable.


 


Unless and until the Required Stockholder
Approval has been obtained, the Warrants are exercisable only into shares of Series A
Preferred Stock on the terms set forth in the Warrant Agreement.


 


In order to exercise a Warrant, the
registered holder hereof must surrender this Warrant Certificate at the
principal place of business of the Company, with the Exercise Subscription Form on
the reverse hereof duly executed by the Holder hereof, with signature
guaranteed as therein specified, together with any required payment in full of
the Exercise Price then in effect for the share(s) of Underlying Stock as
to which the Warrant(s) represented by this Warrant Certificate is (are)
submitted for exercise, all subject to the terms and conditions hereof and of
the Warrant Agreement.  Any such payment
of the Exercise Price shall be by bank wire transfer in immediately available
funds or on a cashless basis as described in Section 3.04(b) of the
Warrant Agreement.


 


The Company shall pay all transfer, stamp and
other similar taxes that may be imposed in respect of the issuance or delivery
of the Warrants or in respect of the issuance or delivery by the Company of any
securities upon exercise of the Warrants. 
The Company may require payment of a sum sufficient to pay certain taxes,
assessments or other charges for which the Holder is responsible pursuant to
the Warrant Agreement.


 


No service charge shall be made to a Holder
for any registration or exchange of the Warrant Certificates, and the Company
shall pay any taxes or other governmental charges payable in connection
therewith.


 


Each taker and holder of this Warrant
Certificate by taking or holding the same, consents and agrees that this
Warrant Certificate when duly endorsed in blank shall be deemed negotiable and
that when this Warrant Certificate shall have been so endorsed, the holder
hereof may be treated by the Company and all other Persons dealing with this
Warrant Certificate as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby.


 


B-2

















 


This Warrant Certificate and all rights
arising hereunder shall be governed by the internal laws of the State of New
York.


 


This Warrant Certificate and the Warrant
Agreement are subject to amendment as provided in the Warrant Agreement.


 


Copies of the Warrant Agreement are on file at the
principal place of business of the Company and may be obtained by writing to
the Company at the following address:


 


Zale Corporation

901 W. Walnut Hill Lane

Irving, TX 75038

Fax:  972-580-5547

Attention:  General Counsel



Dated:


 


 


	
   

  	
  ZALE CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


B-3

















 


FORM OF REVERSE OF B-WARRANT CERTIFICATE


 


EXERCISE SUBSCRIPTION FORM


 


(To be executed only upon
exercise of Warrant for shares of Common Stock after the Required Stockholder
Approval has been obtained)


 


To:                              Zale
Corporation (the “Company”)


 


The undersigned irrevocably exercises
                    
of the Warrants for the purchase of one share (subject to adjustment in
accordance with the Warrant Agreement) of Common Stock, par value $0.01 per
share, of the Company, for each Warrant represented by the Warrant Certificate
and herewith makes payment of $                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Common Stock deliverable upon the
exercise of such Warrants be registered in the name and delivered at the
address specified below.


 


Date:


 


	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(3)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				



 


Securities to be issued to:


 


Please insert social security or identifying
number:


 


Name:


 


Street Address:


 


City, State and Zip Code:


 






(3) The
signature must correspond with the name as written upon the face of the within
Warrant Certificate in every particular, without alteration or any change
whatsoever, and must be guaranteed by a financial institution.


 


B-4

















 


FORM OF REVERSE OF B-WARRANT CERTIFICATE


 


EXERCISE SUBSCRIPTION FORM


 


(To be executed only upon exercise of Warrant
for shares of Series A Preferred Stock to the extent the Required Stockholder
Approval has not been obtained)


 


To:                              Zale
Corporation (the “Company”)


 


The undersigned irrevocably exercises
                    
of the Warrants for the purchase of
                    
shares of Series A Preferred Stock, par value $0.01 per share, of the
Company, for each Warrant represented by the Warrant Certificate and herewith
makes payment of
$                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Series A Preferred Stock
deliverable upon the exercise of such Warrants be registered in the name and
delivered at the address specified below. 
Because the Warrant is exercisable for Series A Preferred Stock in
order to comply with Section 312.03 of the New York Stock Exchange Listed
Company Manual, the undersigned hereby irrevocably elects to receive the Series A
Preferred Stock in lieu of Common Stock.


 


Date:


 


	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(4)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				



 


Securities to be issued to:


 


Please insert social security or identifying
number:


 


Name:


 


Street Address:


 


City,
State and Zip Code:


 






(4) The signature must
correspond with the name as written upon the face of the within Warrant
Certificate in every particular, without alteration or any change whatsoever,
and must be guaranteed by a financial institution.


 


B-5
















 


EXHIBIT C


 


CERTIFICATE OF DESIGNATION OF THE

SERIES A CONVERTIBLE PREFERRED STOCK

(Par Value $0.01 Per Share)


 


OF


 


ZALE CORPORATION


 


Pursuant to Section 151 of the


 General Corporation Law of the
State of Delaware


 


The
undersigned duly authorized officer of Zale Corporation, a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the “Company”), in accordance with the provisions of Section 103
thereof, and pursuant to Section 151 thereof, DOES HEREBY CERTIFY:


 


That
the Restated Certificate of Incorporation of the Company, as amended (the “Certificate
of Incorporation”), provides that the Company is authorized to issue up to
5,000,000 shares of Preferred Stock, par value $0.01 per share, issuable in
series by the Board of Directors of the Company (the “Board”); and


 


That
pursuant to the authority conferred upon the Board by the Certificate of
Incorporation, the Board on [·] adopted the
following resolution creating a series of [·] shares of Preferred Stock designated as set forth
below;


 


RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board by
provisions of the Certificate of Incorporation and the General Corporation Law
of the State of Delaware, the issuance of a series of Preferred Stock, which
shall consist of [·] shares of the
5,000,000 shares of Preferred Stock which the Company now has authority to
issue, be, and the same hereby is, authorized, and the Board hereby fixes the
powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock)
authorized by this resolution as follows:


 


1.             Designation
and Rank.


 


(a)           The
designation of such series of Preferred Stock authorized by this resolution
shall be Series A Convertible Preferred Stock (the “Series A
Preferred Stock”).  The maximum
number of shares of Series A Preferred Stock shall be [·].  Shares of
the Series A Preferred Stock shall have a liquidation preference equal to
the sum of (i) $0.01 per share plus (ii) the Common Stock Equivalent
Liquidation Value, as defined in Section 1(b) below.  The Series A Preferred Stock shall rank
prior to the Company’s Common Stock and to all other classes and series of
equity securities of the


 


C-1

















 


Company
now or hereafter authorized, issued or outstanding (the Common Stock and such
other classes and series of equity securities collectively referred to herein
as the “Junior Stock”) as to dividend rights and rights upon
liquidation, winding up or dissolution of the Company.  The Series A Preferred Stock shall be
junior to all outstanding debt of the Company. 
The Series A Preferred Stock shall be subject to the creation of
Junior Stock to the extent not expressly prohibited by the Company’s
Certificate of Incorporation.


 


(b)           For
purposes of this Certificate of Designation, “Common Stock Equivalent
Liquidation Value” means an amount equal to (i) the number of shares
of Common Stock into which each share of Series A Preferred Stock could
then be converted had the stockholders of the Company approved such conversion,  multiplied
by (ii) the amount that each share of Common Stock would receive in
a liquidation (assuming, for purposes of this calculation, that the Series A
Preferred Stock had been fully converted into shares of Common Stock
immediately prior to such liquidation).


 


2.             Cumulative
Dividends; Priority.


 


(a)           Payment
of Dividends.  From and after the date on
which a share of Series A Preferred Stock is first issued, the holders of
such stock shall be entitled to receive, when, as and if declared by the Board,
out of funds legally available therefor, cumulative cash dividends in the
amount determined as set forth in Section 2(b).  Each declared dividend shall be payable to
holders of record of Series A Preferred Stock as they appear on the stock
books of the Company at the close of business on such record dates, not more
than 60 calendar days preceding the payment dates therefor, as are determined
by the Board or a duly authorized committee thereof (each of such dates, a “Record
Date”).  Dividends shall be payable
quarterly in arrears on January 31, April 30, July 31 and October 31
of each year (each, a “Dividend Payment Date”) or, if any such day is
not a day other than a Saturday, Sunday or any other day on which banks in New
York City, New York are generally required or authorized by law to be closed (a
“Business Day”), the next Business Day. 
Dividends payable pursuant to this Section 2, if, when and as
declared by the Board, will be, on each outstanding share of Series A
Preferred Stock, payable at the Dividend Rate (as defined in Section 2(b))
in effect for such Dividend Period (as defined below).  Each period from and excluding a Dividend
Payment Date but including the following Dividend Payment Date is herein
referred to as a “Dividend Period”. 
Dividends pursuant to this Section 2(a) shall be paid in cash.


 


(b)           Dividend
Rate.  From the date of issuance of the
first share of Series A Preferred Stock that is issued (or from the end of
the prior Dividend Period) and until the occurrence of the Conversion Date (as
defined in Section 6(a)), dividends on all shares of Series A
Preferred Stock that are issued from time to time will be paid on each Dividend
Payment Date in a per share amount calculated as the applicable Dividend Rate
in effect with respect to such Dividend Period
multiplied by an
amount equal to the product of (i) the average of the daily
volume-weighted average prices per share of the Common Stock during each
trading day in such Dividend Period on the principal stock exchange on which
the Common Stock then trades and (ii) the number of shares of Common Stock
into which each share of Series A Preferred Stock could then be converted
had the stockholders of the Company approved such conversion.  The Dividend Rate shall be 10.0% for the
first four Dividend Periods following the date of issuance of the first share


 


C-2

















 


of
Series A Preferred Stock that is issued and increase by 2.0% after each
two subsequent Dividend Periods, but shall not exceed a rate of 18.0%.


 


(c)           Special
Dividends.  In addition to dividends
payable pursuant to Section 2(a), each share of Series A Preferred
Stock shall be paid, as and when paid in respect of the Common Stock, dividends
and distributions paid in respect of the Common Stock. Each share of Series A
Preferred Stock shall be paid any dividend or distribution payable pursuant to
this Section 2(c) in an amount equal to (i) the amount of such
dividend or distribution payable in respect of one share of Common Stock multiplied by (ii) the number
of shares of Common Stock into which each share of Series A Preferred
Stock could then be converted had the stockholders of the Company approved such
conversion.


 


(d)           Priority
as to Dividends; No Repurchases.  No
dividends shall be declared or paid or set apart for payment on Preferred Stock
of any series ranking, as to dividends, on a parity with or junior to the Series A
Preferred Stock for any period unless full dividends for the immediately
preceding Dividend Period on the Series A Preferred Stock (including any
accumulation in respect of unpaid dividends from prior Dividend Periods) have
been or contemporaneously are declared and paid (or declared and a sum
sufficient for the payment thereof set apart for such payment).


 


Unless
full dividends on the Series A Preferred Stock have been declared and paid
or set apart for payment for the immediately preceding Dividend Period
(including any accumulation in respect of unpaid dividends for prior Dividend
Periods), (i) no cash dividend or other distribution shall be declared or
paid or set aside for payment on the Junior Stock other than a dividend or
distribution solely in shares of Junior Stock,
provided, however, that  such dividend or distribution is also being
paid in respect of the Series A Preferred Stock in accordance with Section 2(c),
and (ii) the Company may not, directly or indirectly, repurchase, redeem
or otherwise acquire any shares of any class or series of stock ranking on a
parity with the shares of the Series A Preferred Stock in rights and
preferences (or any moneys paid to or made available for a sinking fund for the
redemption of any shares of any such stock) otherwise than pursuant to a pro
rata offer to purchase or a concurrent redemption of all, or a pro rata
portion, of the outstanding shares of Series A Preferred Stock and shares
of any class or series of stock ranking on a parity with the shares of the Series A
Preferred Stock in rights and preferences (except by conversion into or
exchange for Junior Stock).


 


The Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company if, under the preceding paragraph, the Company would be
prohibited from purchasing or otherwise acquiring such shares at such time and
in such manner.


 


(e)           At
any time at which any shares of Series A Preferred Stock are outstanding,
the Company may not, directly or indirectly, repurchase, redeem or otherwise
acquire any shares of its Junior Stock (or cause any moneys to be paid to or
made available for a sinking fund for the redemption of any shares except by
conversion into or exchange for Junior Stock).


 


3.             Redemption
and Repurchase.  The shares of the Series A
Preferred Stock shall not be redeemable.


 


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4.             Voting
and Consent Rights.


 


(a)           General
Voting Rights.  Except as from time to time
required by applicable law, the Series A Preferred Stock shall have no
voting rights.


 


(b)           Consent
Rights on Extraordinary Matters.  So long
as any shares of the Series A Preferred Stock shall be outstanding and
unless the consent or approval of a greater number of shares shall then be
required by law, without first obtaining the consent of the holders of at least
two-thirds of the number of shares of the Series A Preferred Stock at the
time outstanding, the Company shall not either directly or indirectly or
through merger or consolidation with any other company (i) authorize,
create or issue, or increase the authorized or issued amount, of any class or
series of stock ranking senior to or  pari passu with the shares of the Series A
Preferred Stock in rights and preferences or (ii) approve any amendment to
(or otherwise alter or repeal) its Certificate of Incorporation (or this
resolution) which would materially and adversely change the specific terms of
the Series A Preferred Stock.


 


An amendment which increases the number of
authorized shares of any class or series of Preferred Stock or authorizes the
creation or issuance of other classes or series of Preferred Stock, in each
case ranking junior to the Series A Preferred Stock with respect to the
payment of dividends and distribution of assets upon liquidation, dissolution
or winding up, or substitutes the surviving entity in a merger or
consolidation, reorganization or other business combination for the Company,
shall not be considered to be such an adverse change.


 


5.             Reorganization
Events


 


(a)           In
the event of: (i) any consolidation or merger of the Company with or into
another person, in each case pursuant to which the Common Stock will be
converted into cash, securities or other property of the Company or another
person, (ii) any sale, transfer, lease or conveyance to another person of
all or substantially all of the property and assets of the Company, in each
case pursuant to which the Common Stock will be converted into cash, securities
or other property of the Company or another person, (iii) any
reclassification of the Common Stock into securities including securities other
than the Common Stock or (iv) any statutory exchange of the outstanding
shares of Common Stock for securities of another person (other than in
connection with a merger or acquisition) (any such event specified in this Section 5(a),
a “Reorganization Event” ), each share of Series A Preferred Stock
outstanding immediately prior to such Reorganization Event shall remain
outstanding but shall become convertible into the kind of securities, cash and
other property receivable in such Reorganization Event by the holder (excluding
the counterparty to the Reorganization Event or an affiliate of such
counterparty) of that number of shares of Common Stock into which the share of Series A
Preferred Stock would then be convertible (such securities, cash and other
property, the “Exchange Property”).


 


(b)           In
the event that holders of the shares of Common Stock have the opportunity to
elect the form of consideration to be received in such transaction, the
consideration that the holders are entitled to receive shall be deemed to be
the types and amounts of consideration received by the majority of the holders
(excluding the


 


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counterparty
to the Reorganization Event or an affiliate of such counterparty) of the shares
of Common Stock that affirmatively make an election.


 


(c)           The
Company (or any successor) shall, within 10 days of the occurrence of any Reorganization
Event, provide written notice to the holders of such occurrence of such event
and of the kind and amount of the cash, securities or other property that
constitutes the Exchange Property. Failure to deliver such notice shall not
affect the operation of this Section 5.


 


(d)           Notwithstanding
anything to the contrary in this Section 5 or otherwise in this
Certificate of Designation, the Company shall not enter into any agreement for
a transaction constituting a Fundamental Change (as defined herein) unless such
agreement entitles holders to receive, on an as-if converted basis, the
securities, cash and other property receivable in such transaction by a holder
of shares of Common Stock that was not the counterparty to such transaction or
an affiliate of such other party. “Fundamental Change” means the
occurrence, prior to the Conversion Date, of the consummation of any
consolidation or merger of the Company or similar transaction or any sale,
lease or other transfer in one transaction or a series of transactions of all
or substantially all of the consolidated assets of the Company to any person,
in each case pursuant to which the Common Stock will be converted into cash,
securities or other property, other than pursuant to a transaction in which the
persons that “beneficially owned” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, voting
shares of the Company immediately prior to such transaction beneficially own,
directly or indirectly, voting shares representing a majority of the continuing
or surviving person immediately after the transaction.


 


6.             Conversion.


 


(a)           Mandatory
Conversion.  Effective as of the close of
business on the Conversion Date with respect to any share of Series A
Preferred Stock, such share of Series A Preferred Stock shall
automatically convert into one share of Common Stock (the “Conversion Amount”),
subject to adjustment from time to time as set forth in Section 6(c).  The “Conversion Date” means, with
respect to the shares of Series A Preferred Stock, the third Business Day
following the date on which the Company has received all stockholder approvals
necessary to approve the conversion of all of the outstanding Series A
Preferred Stock into Common Stock for purposes of Section 312.03 of the
New York Stock Exchange Listed Company Manual.


 


(b)           Conversion
Procedures.  Upon occurrence of the
Conversion Date, the Company shall provide notice of such conversion to all
holders of Series A Preferred Stock. 
In addition to any information required by applicable law or regulation,
such notice shall state, as appropriate: (i) the Conversion Date, (ii) the
number of shares of Common Stock to be issued upon conversion of each share of Series A
Preferred Stock held of record by each holder and (iii) the place or
places where certificates for shares of Series A Preferred Stock held of
record by each holder are to be surrendered for issuance of certificates
representing shares of Common Stock.  On
the Conversion Date, certificates representing shares of Common Stock shall be
issued and delivered to each holder or such holder’s designee upon presentation
and surrender of the certificate


 


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evidencing
the Series A Preferred Stock to the Company.  The Company shall pay any and all transfer
and similar taxes in respect of such conversion by such holder.


 


(c)           Adjustments
Upon Certain Transactions.  If the
Company subdivides its outstanding Common Stock or combines its outstanding
Common Stock into a smaller number of shares, then the Conversion Amount shall
be adjusted as if such subdivision or combination applied to the shares
represented by the Conversion Amount.


 


7.             Liquidation
Rights; Priority.


 


(a)           In
the event of any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company, the holders shall be
entitled to receive, out of the assets of the Company, whether such assets are
capital or surplus and whether or not any dividends as such are declared, the
sum of (i) $0.01 per share, (ii) the Common Stock Equivalent
Liquidation Value as defined in Section 1(b) and (iii) an amount
equal to all accrued and unpaid dividends for prior Dividend Periods, and no
more, before any distribution shall be made to the holders of the Common Stock
or any other class of stock or series thereof ranking junior to the Series A
Preferred Stock with respect to the distribution of assets.  After payment of the full amount of the
liquidation preference, the holders shall not be entitled to any further
participation.


 


(b)           Neither
the merger nor consolidation of the Company into or with any other company, nor
the merger or consolidation of any other company into or with the Company, nor
a sale, transfer or lease of all or any part of the assets of the Company,
shall be deemed to be a liquidation, dissolution or winding up of the Company
within the meaning of this Section 7.


 


(c)           Written
notice of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall be given by mail, postage
prepaid, no less than 30 days prior to the payment date stated therein, to
the holders at their respective addresses as the same shall appear on the books
of the Company.


 


(d)           If
the amounts available for distribution with respect to the Series A
Preferred Stock and all other outstanding stock of the Company ranking on a
parity with the Series A Preferred Stock upon liquidation are not
sufficient to satisfy the full liquidation rights of all of the outstanding Series A
Preferred Stock and other outstanding stock of the Company ranking on a parity
therewith, then the holders of each series of such stock will share ratably in
any such distribution of assets in proportion to the full respective
preferential amount (which in the case of Preferred Stock may include
accumulated dividends) to which they are entitled.


 


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IN WITNESS WHEREOF, Zale Corporation has caused this
Certificate to be signed by [·], this [·] day of [·], 2010.


 


 


	
   

  	
  ZALE CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


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