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                                                                    EXHIBIT 10.1

                             CONFIDENTIAL SEPARATION
                              AGREEMENT AND RELEASE

         This Confidential Separation Agreement and Release (the "Agreement") is
made and entered into by and between Nora I. Serrano ("Employee") and Home
Interiors & Gifts, Inc. (the "Company"), herein collectively referred to as the
"Parties". This Agreement will become effective as of August 15, 2003 (the
"Effective Date").

                                    RECITALS

         WHEREAS, Employee has been employed by the Company as Senior Vice
President of Sales.

         WHEREAS, Employee and the Company have mutually agreed to terminate
Employee's employment with the Company; and

         WHEREAS, the Parties desire to settle fully and finally, in the manner
set forth herein, all differences between them which have arisen, or which may
arise, prior to, or at the time of, the execution of this Agreement, including
but not limited to, any and all claims and controversies arising out of the
employment relationship, including the termination thereof, between Employee and
the Company.

         NOW, THEREFORE, in consideration of the recitals and the mutual
promises, covenants and agreements set forth herein, the Parties covenant and
agree as follows:

         1.       Termination of Employment. Employee and the Company agree that
                  Employee's employment with the Company and any of its
                  affiliates (including, without limitation, in any position as
                  an officer of the Company and any of its affiliates) is
                  terminated effective as of August 15, 2003 (the "Termination
                  Date"). Effective as of the Termination Date, all benefits
                  under all Company plans, programs and/or arrangements shall
                  terminate, except as otherwise provided in this Agreement. The
                  Company may open and answer, and authorize others to open and
                  answer, all mail, communications, and other correspondence
                  addressed to Employee relating to the Company or any of its
                  subsidiaries or affiliates or to Employee's employment with
                  the Company or any of its subsidiaries, and Employee shall
                  promptly refer to the Company all inquiries, mail,
                  communications, and correspondence received by her relating to
                  the Company or any of it subsidiaries or affiliates or to
                  Employee's employment with the Company or any of its
                  subsidiaries or affiliates. The Company will promptly forward
                  to Employee all of Employee's personal mail, communications or
                  correspondence received by the Company, unopened to the extent
                  it is reasonably ascertained to be of a personal nature.

         2.       General Release. Employee, for and on behalf of herself, and
                  Employee's spouse, family, agents, assigns, successors, heirs,
                  executors, administrators, affiliates, associates, and legal
                  representatives does hereby IRREVOCABLY AND UNCONDITIONALLY
                  RELEASE, RELINQUISH, QUITCLAIM, ACQUIT,

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                  AND FOREVER DISCHARGE the Company, its predecessors,
                  successors, past and present parent companies, subsidiary
                  companies, affiliates, associates, partnerships, and its
                  respective current and former owners, partners, assigns,
                  successors, employees, agents, heirs, executors,
                  administrators, legal representatives, officers, directors,
                  shareholders and attorneys and insurers of said corporations,
                  firms, associations, partnerships, and entities (hereinafter
                  the "Releasees"), of and from any and all complaints, claims,
                  grievances, liabilities, suits, demands, causes of action,
                  obligations, promises, agreements, rights, damages, costs
                  (including court costs and attorney's fees), losses, expenses
                  and compensation of any nature whatsoever, KNOWN OR UNKNOWN,
                  past, present or future, fixed or contingent, liquidated or
                  unliquidated, ACCRUED OR CONTINGENT, including, but not
                  limited to, any and all known or unknown claims which have
                  resulted or may result from any alleged acts or omissions,
                  arising out of Employee's hiring, terms and conditions of
                  employment, employment benefits, treatment during employment,
                  and separation from employment, including but not limited to
                  any bonus plans, stock option plans (except to the extent
                  specifically provided below) or other compensation
                  arrangements and expressly including, but not limited to, any
                  and all claims or causes of action based on, related to or
                  arising out of any alleged discrimination, harassment or
                  retaliation based on age, race, sex, national origin, color,
                  religion, citizenship status, disability, or handicap under
                  any municipal, local, state, or federal law, common or
                  statutory; including Title VII of the Civil Rights Act of 1964
                  (as amended) or any similar law; the Age Discrimination in
                  Employment Act (as amended) or any similar law; the Americans
                  with Disabilities Act (as amended), the Federal Rehabilitation
                  Act or any similar law; the Fair Labor Standards Act or any
                  similar law; the Older Workers Benefit Protection Act and any
                  similar law; wages, compensation, or benefits of employment;
                  retirement benefits or compensation; severance pay or
                  benefits; future compensation, including bonuses or profit
                  sharing; wrongful discharge from employment; negligence;
                  intentional torts; personal injury; mental anguish or
                  emotional distress; exemplary damages; alleged retaliation
                  related to workers' compensation claims under chapter 451 or
                  the Texas Labor Code or any similar law or relating to
                  so-called "whistle-blowers" law; Texas Payday Act or any
                  similar law; defamation, libel or slander; fraud; or breach of
                  contract (including, without limitation, any and all claims or
                  causes of action based on, related to or arising out of that
                  certain Employment Agreement, dated as of November 1, 2001, as
                  amended by that certain Amendment to Employment Agreement,
                  entered into as of December 12, 2002 (the "Employment
                  Agreement") or any other agreement relating to employment,
                  written or oral), any of which existed or may have existed
                  prior to, or contemporaneously with the execution of this
                  Agreement.

                  By the signature below, Employee does hereby acknowledge that
                  upon payment of all the consideration recited herein this is
                  final, full and complete satisfaction, settlement and
                  discharge of any and all liability of the Releasees, if any,
                  to Employee whatsoever by reason of any manner, cause or thing
                  in any way connected with or arising out of the Employee's
                  employment and/or termination

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                  of employment and that Employee shall not receive any further
                  sums of money or other property, except as set forth in this
                  Agreement, from the Company.

                  Except as expressly provided in this Agreement, neither the
                  Company nor any of its predecessors, successors, assigns,
                  subsidiaries or affiliates shall have any further obligation
                  to Employee in connection with the Employment Agreement or
                  Employee's employment by the Company or any of its affiliates
                  or subsidiaries, including but not limited to severance,
                  compensation (including but not limited to deferred
                  compensation, employment contracts, stock options, bonuses and
                  commissions), health insurance, life insurance, disability
                  insurance, club dues, vehicle allowances, vacation pay, sick
                  pay and any similar obligations.

         3.       Covenant Not to Sue. Employee, for herself and on behalf of
                  Employee's attorneys, spouse, family, heirs, assigns,
                  successors, executors, and administrators, COVENANTS NOT TO
                  SUE, OR OTHERWISE CONSENT TO PARTICIPATE IN ANY ACTION
                  AGAINST, any of the Releasees based upon any of the claims
                  released in Paragraph 2 of this Agreement and represents that
                  no other person or entity has initiated or will initiate any
                  such proceedings on her behalf. A violation by Employee of
                  this Section 3 will result in indemnification obligations
                  under Section 9, below. EMPLOYEE AGREES, WARRANTS, AND
                  REPRESENTS TO THE COMPANY THAT EMPLOYEE HAS FULL EXPRESS
                  AUTHORITY TO SETTLE ALL CLAIMS AND DEMANDS THAT ARE THE
                  SUBJECT OF SECTION 2 OF THIS AGREEMENT AND THAT EMPLOYEE HAS
                  NOT GIVEN OR MADE ANY ASSIGNMENT TO ANYONE, INCLUDING
                  EMPLOYEE'S SPOUSE, FAMILY OR LEGAL COUNSEL, OF ANY CLAIMS
                  AGAINST ANY PERSON OR ENTITY ASSOCIATED WITH THE COMPANY OR
                  ANY RELEASEES. TO THE EXTENT THAT ANY CLAIM RELATED TO THIS
                  AGREEMENT MAY BE BROUGHT BY PERSONS OR ENTITIES CLAIMING BY,
                  THORUGH, OR UNDER EMPLOYEE, HER HEIRS, SUCCESSORS, OR ASSIGNS,
                  THEN EMPLOYEE FURTHER AGREES TO INDEMNIFY, DEFEND, AND HOLD
                  HARMLESS THE COMPANY OR ANY COMPANY PARTY, THEIR RESPECTIVE
                  AGENTS, AND THEIR RESPECTIVE SUCCESSORS FROM ANY LAWSUIT,
                  JUDGMENT, OR SETTLEMENT ARISING FROM SUCH CLAIMS. EMPLOYEE
                  FURTHER HEREBY ASSIGNS TO THE COMPANY ALL CLAIMS AND CAUSES OF
                  ACTION COVERED BY SECTION 2.

         4.       Non-Disclosure of Agreement. Employee agrees that she will
                  keep the terms, amount, and facts of this Agreement STRICTLY
                  AND COMPLETELY CONFIDENTIAL, and that she will not communicate
                  or otherwise disclose the terms, amount, or facts of this
                  Agreement to any employee of the Company (past, present, or
                  future), or to any other person, except (a) to Employee's
                  spouse, attorneys, accountants, financial advisors, and future
                  employers, provided that such individuals are advised of and
                  agree to maintain the confidentiality of such matters and (b)
                  as may be required by law or compulsory process. The Company
                  agrees to take reasonable action to keep the terms, amount,
                  and facts of this Agreement STRICTLY AND COMPLETELY
                  CONFIDENTIAL, and that it will

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 3

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                  take reasonable action to prevent any employee from
                  communicating or otherwise disclosing the terms, amount or
                  facts of this Agreement to any employee of the Company (past,
                  present or future) or to any other person, except (a) to the
                  Company's senior management, directors, attorneys,
                  accountants, financial advisors, lenders, and other persons
                  which senior management of the Company believes need to be
                  aware of such matters, provided that such individuals are
                  advised of and agree to maintain the confidentiality of such
                  matters, (b) as the Company may deem appropriate in connection
                  with any transactions involving the sale of securities of the
                  Company or of any material portion of the assets of the
                  Company or any transactions involving a merger of the Company
                  with any third party, (c) future employers of Employee as
                  referenced in Sections 5 and 6(e), and (d) as may be required
                  by law or compulsory process. In the event that a Party is
                  required or compelled by law or compulsory process to disclose
                  the existence and or contents of this Agreement, such Party
                  will use best efforts to provide the other Party with written
                  notice, at least seven (7) days in advance of any such
                  disclosure.

         5.       Confidentiality. Employee acknowledges that during the term of
                  employment with the Company, Employee received valuable
                  special training, had access to and became acquainted with
                  various displayer lists, customer lists, trade secrets and
                  other confidential information not ordinarily available to the
                  general public. Employee agrees that such special knowledge
                  received is included in the Company's proprietary confidential
                  information. Employee agrees that this confidential
                  information is valuable to the Company and that its protection
                  and maintenance constitutes a legitimate interest to be
                  protected by the enforcement of the covenants contained in
                  this Agreement.

                  Employee acknowledges that the Confidential Information (as
                  defined below) relating to the business of the Company, or any
                  of its affiliates, which has been obtained during her
                  employment with the Company, is the property of the Company.
                  Employee agrees that she will not disclose or use at any time,
                  any Confidential Information, without the prior written
                  consent of the Company. Employee agrees to destroy or deliver
                  to the Company, after the termination from employment, all
                  memoranda, notes, plans, records, reports, drawings, sketches,
                  specifications, diskettes, tapes and other storage media,
                  documentation and other materials (and copies thereof),
                  whether in written, printed or digital format, containing
                  Confidential Information, no matter where such material is
                  located and no matter what form the material may be in, which
                  Employee may then possess or have under her control. If
                  requested by the Company, Employee shall provide to the
                  Company written confirmation that all such materials have been
                  delivered to the Company or have been destroyed. Employee
                  shall take all appropriate steps to safeguard Confidential
                  Information and to protect it against disclosure, misuse,
                  espionage, loss and theft. Company shall be authorized to
                  disclose to any future employer of Employee that Employee's
                  use or disclosure of the Confidential Information is governed
                  by this Agreement and, at the Company's election, furnish such
                  new employer with a copy of this Agreement or relevant portion
                  thereof.

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                  For purpose of this Agreement, "Confidential Information"
                  shall mean trade secrets, confidential or proprietary
                  information and all other knowledge, know-how, information,
                  documents or materials owned, developed or possessed by the
                  Company or any of its affiliates, whether in tangible or
                  intangible form, pertaining to the business of the Company or
                  any of its affiliates, or any customer thereof, known or
                  intended to be known only to employees of the Company of any
                  of its affiliates or other persons in a confidential
                  relationship with the Company, or the confidentiality of which
                  the Company takes reasonable measure to protect, including,
                  but not limited to manufacturing processes, research and
                  development data, project data, assignments of individual
                  employees, testing and evaluation procedures, cost data and
                  techniques, data bases, designs, models, operation procedures,
                  knowledge of the organization (including pricing and sales
                  policies, techniques and concepts), trade shows (including
                  prices, costs, sales or content), details of joint venture or
                  sponsorship agreements, knowledge of strategic or marketing
                  plans for future products, events, processes, techniques,
                  contracts, financial information or measures, business
                  methods, future business plans, package design, retail design,
                  field marketing outsourcing, displayers and customers
                  (including identities and contact information of displayers
                  and customers and prospective displayers and customers, and
                  identities and contact information of individual contacts at
                  business entities, which are customers), suppliers, vendors,
                  business relationships and other information owned, developed
                  or possessed by the Company; provided however, that
                  Confidential Information shall not include (i) information
                  (other than the identities of displayers and customers) that
                  is in the public domain through no fault of Employee; (ii)
                  information approved for release by written authorization of
                  the Company; or (iii) information that may be required by law
                  or an order of any court, agency or proceeding to be publicly
                  disclosed.

         6.       Non-Solicitation and Non-Teaming.

                  (a)      The Employee acknowledges that: (i) the Company's
                           business is international in scope and its products
                           are marketed throughout the United States and the
                           world; (ii) the Company competes with other
                           businesses both within the United States and
                           internationally; and (iii) the provisions of this
                           Section 6 are reasonable and necessary to protect the
                           Company's business.

                  (b)      In consideration of the acknowledgments by the
                           Employee, and in consideration of the compensation
                           and benefits to be paid or provided to the Employee
                           by the Company under this Agreement, the Employee
                           agrees that she will not, directly or indirectly:

                           (i)      during the Post-Employment Period (as
                                    defined below), participate with two (2) or
                                    more individuals who were members of
                                    management or unit directors (or higher
                                    level directors) of the Company within the
                                    three (3) year period prior to the Effective
                                    Date in the ownership, management, or
                                    operation of any business

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 5

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                                    that involves direct sales or any business
                                    whose products, services or activities
                                    compete in whole or in part with the
                                    products, services or activities of the
                                    Company or its affiliates, anywhere within
                                    the United States or within any foreign
                                    country where the Company or its affiliates
                                    conduct or market their business or
                                    services, PROVIDED HOWEVER, that any
                                    violation of this Section 6(b)(i) shall not
                                    constitute a material breach under Section 9
                                    (giving rise to the remedies listed
                                    therein), if such violation is cured by
                                    Employee within ten (10) days following the
                                    giving of written notice by the Company to
                                    the Employee at the address set forth on the
                                    signature page of this Agreement;

                           (ii)     whether for the Employee's own account or
                                    for the account of any other person or
                                    entity, at any time during the
                                    Post-Employment Period, solicit business of
                                    the same or similar type being carried on by
                                    the Company or its affiliates, from any
                                    retail or wholesale customer of the Company
                                    or its affiliates in existence at any time
                                    during the year prior to the Effective Date,
                                    whether or not the Employee had personal
                                    contact with such customer during and by
                                    reason of the Employee's employment with the
                                    Company;

                           (iii)    whether for the Employee's own account or
                                    the account of any other person or entity,
                                    at any time during the Post-Employment
                                    Period, solicit, employ, or otherwise engage
                                    as an employee, independent contractor, or
                                    otherwise, any person who is or was at the
                                    time of such solicitation, employment or
                                    engagement an employee, displayer,
                                    consultant or independent contractor of the
                                    Company or its affiliates or in any manner
                                    induce or attempt to induce any employee of
                                    the Company or its affiliates to terminate
                                    his/her employment with the Company, or its
                                    affiliates or in any manner induce or
                                    attempt to induce any displayer of the
                                    Company or its affiliates to terminate
                                    his/her relationship with the Company or its
                                    affiliates; or

                           (iv)     whether for the Employee's own account or
                                    the account of any other person at any time
                                    during the Post-Employment Period, interfere
                                    with the Company's or any of its affiliates'
                                    relationship with any person, including any
                                    person who is or was at any time prior to or
                                    during the Post-Employment Period, an
                                    employee, displayer, contractor, supplier,
                                    or customer of the Company or its
                                    affiliates.

                  (c)      If any covenant in this Section 6 is held to be
                           unreasonable, arbitrary, or against public policy,
                           such covenant will be considered to be divisible with
                           respect to scope, time, and geographic area, and such
                           lesser scope, time, or geographic area, or all of
                           them, as a court of competent jurisdiction may
                           determine to be reasonable, not arbitrary,

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                           and not against public policy, will be effective,
                           binding, and enforceable against the Employee.

                  (d)      The period of time applicable to any covenant in this
                           Section 6 will be extended by the duration of any
                           violation by the Employee of such covenant.

                  (e)      The Employee will, while the covenant under this
                           Section 6 is in effect, give written notice to the
                           Company, within ten (10) days after accepting any
                           other employment or consulting arrangement, of the
                           identity of the Employee's new employer or contractor
                           and all of the material duties and services to be
                           provided by Employee in such employment or retention,
                           which shall not require disclosure by Employee of any
                           terms of compensation. The Company may notify such
                           new employer that the Employee is bound by this
                           Agreement and, at the Company's election, furnish
                           such new employer with a copy of this Agreement or
                           relevant portion thereof.

                  (f)      The term "Post-Employment Period" means the three (3)
                           year period following the Effective Date.

         7.       Severance Benefit Terms. The Company agrees to:

                  (a)      Pay to Employee within three (3) days following the
                           Effective Date cash in the amount of ONE MILLION
                           NINETY SIX THOUSAND SIX HUNDRED NINETY-ONE DOLLARS
                           ($1,096,691.00) (such amount representing three (3)
                           times Employee's 2002 year-end salary and 2002
                           bonus), less (A) payroll deductions and other
                           deductions required by law, and (B) taxes required to
                           be withheld by the Company with respect to the
                           transfer to Employee of the automobile described in
                           Section 7(d) of this Agreement.

                  (b)      Reimburse Employee for insurance premiums required to
                           maintain health coverage under COBRA, and for
                           supplemental life, accidental death and dismemberment
                           insurance policies, (or at the Company's election,
                           pay such premiums directly) through the earlier of
                           August 31, 2004 or the date on which Employee has
                           comparable coverage through a new employer.

                  (c)      Subject to Section 9, below, the Company shall amend
                           and restate (A) the terms of those certain
                           Non-Qualified Stock Option Agreements, dated November
                           1, 2000 (as amended as of March 18, 2002), and May 7,
                           2002, in accordance with the terms of an Amended and
                           Restated Non-Qualified Stock Option Agreement
                           substantially in the form of Exhibit A attached
                           hereto and (B) the terms of that certain
                           Non-Qualified Stock Option Agreement, dated September
                           27, 2002, in accordance with the terms of an Amended
                           and Restated Non-Qualified Stock Option Agreement
                           substantially in the form of Exhibit B attached
                           hereto.

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                  (d)      Transfer to Employee title to the 2003 Mercedes Benz
                           E320 currently being leased by the Company for use by
                           Employee.

                  (e)      Subject to Sections 5 and 6, above, waive any all
                           rights the Company may have to enforce the
                           non-competition covenant of Employee under Section
                           9(b)(i) of the Employment Agreement for actions taken
                           by Employee after the Termination Date.

                           The payments and benefits set forth in Section 7
                           shall be subject to applicable federal, state and
                           local withholding taxes and to any withholding that
                           would be applicable were Employee an employee of the
                           Company. EMPLOYEE AGREES THAT, TO THE EXTENT THAT ANY
                           INDIVIDUAL FEDERAL OR STATE TAXES OF ANY KIND MAY BE
                           DUE AS A RESULT OF ANY SUCH PAYMENT TO EMPLOYEE,
                           EMPLOYEE SHALL BE SOLELY RESPONSIBLE FOR SUCH TAXES
                           AND WILL INDEMNIFY, DEFEND, AND HOLD HARMLESS THE
                           COMPANY IN THE EVENT THERE IS ANY CLAIM AGAINST THE
                           COMPANY FOR SUCH TAXES. THIS SECTION SHALL NOT
                           RELEASE THE COMPANY OF ITS OBLIGATIONS WITH RESPECT
                           TO WITHHOLDING.

         8.       No Admission. This Agreement is not an admission of wrongdoing
                  or liability by either Employee or the Company. The Parties
                  hereto recognize that, by entering into this Agreement, the
                  Company does not admit any violation of any local, state, or
                  federal law, common or statutory. The Parties further
                  recognize that this Agreement has been entered into in release
                  and compromise of any claims that might be asserted by
                  Employee, in connection with Employee's employment with the
                  Company, or the termination thereof, and to avoid the expense
                  and burden of any litigation related thereto.

         9.       Breach by Employee. The Parties acknowledge and agree that in
                  the event Employee materially breaches any provision of this
                  Agreement: (a) the Company may suspend payments under this
                  Agreement and/or rescind the Agreement; (b) Employee will
                  indemnify and hold the Company harmless from and against any
                  and all resulting damages or loss incurred by the Company
                  (including attorneys' fees and expenses); (c) Employee will
                  immediately repay to the Company in full any payment made to
                  her under the provisions of this Agreement; and (d) the
                  Company will be entitled to recover from Employee any payment
                  not repaid to the Company, as required by subpart (c) of this
                  paragraph, as well as any and all other resulting actual or
                  consequential damages. Further, in the event Employee
                  materially breaches any provision of this Agreement all
                  options described under Section 7(c) shall be forfeited,
                  whether or not then vested or unvested. The Company may also
                  pursue any other available remedies for any breach of this
                  Agreement.

                  One or more waivers of a breach of any covenant, term, or
                  provision of this Agreement by any of the Parties shall not be
                  construed as a waiver of a

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 8

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                  subsequent breach of the same covenant term, or provision, nor
                  shall it be considered a waiver of any other existing or
                  subsequent breach of a different covenant, term, or provision.

         10.      Severability. If any provision or term of this Agreement is
                  held to be illegal, invalid, or unenforceable, such provision
                  or term shall be fully severable; this Agreement shall be
                  construed and enforced as if such illegal, or unenforceable
                  provision had never comprised part of this Agreement; and the
                  remaining provisions of this Agreement shall remain in full
                  force and effect and shall not be affected by the illegal,
                  invalid, or unenforceable provision or by its severance from
                  this Agreement. However, the Parties agree that all payments
                  made under the Agreement shall remain full and final and the
                  occurrence of any event of inapplicability, invalidity,
                  illegality, unenforceability, or modification made to this
                  Agreement shall in no way (a) entitle the Employee to any
                  additional payment, compensation, or cost from the Company or
                  create any liability for the Company to the Employee under
                  this Agreement, or (b) revise, reinstate, or otherwise restore
                  any claims or causes of action being released hereby. The
                  Parties further agree that the occurrence of any such
                  inapplicability, invalidity, illegality, unenforceability, or
                  modification will not operate to reduce the consideration paid
                  to the Employee under this Agreement. Furthermore, in lieu of
                  such illegal, invalid, or unenforceable provision or term
                  there shall be added automatically as a part of this Agreement
                  another provision or term as similar to the illegal, invalid,
                  or unenforceable provisions, as may be possible and that is
                  legal, valid, and enforceable.

         11.      Remedies. The Parties agree that should one party sue the
                  other party for a breach of any provision of this Agreement,
                  the prevailing party shall be entitled to recover its
                  attorneys' fees and costs of court. The parties hereby agree
                  that each party shall have the right to sue for specific
                  performance of this Agreement, and for declaratory and
                  injunctive relief.

         12.      Entire Agreement. This Agreement (together with the stock
                  option agreements substantially in the form attached hereto as
                  Exhibits A and B) constitutes the entire Agreement of the
                  Parties, and supersedes all prior and contemporaneous
                  negotiations and agreements, oral or written. All such prior
                  and contemporaneous negotiations and agreements are deemed
                  incorporated and merged into this Agreement and are deemed to
                  have been abandoned if not so incorporated. No
                  representations, oral or written, are being relied upon by
                  either party in executing this Agreement other than the
                  express representations of this Agreement. This Agreement
                  cannot be changed or terminated without the express written
                  consent of the parties.

         13.      Reference. The Parties acknowledge and agree that Employee
                  will direct any request for employment references from the
                  Company to the Chief Executive Officer of the Company, and
                  that the Company will not be obligated to respond to any such
                  requests, or to any other inquiries from prospective employers
                  of

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                  Employee, except to disclose only a neutral reference that
                  discloses only Employee's job title and dates of employment.

         14.      Waiver. Employee waives and releases forever any right or
                  rights she might have to seek re-employment, or reinstatement
                  with the Company or any of the other Releasees.

         15.      Non-Disparagement. Employee agrees that she shall not,
                  directly or indirectly, in any way disparage the Company or
                  its affiliates or any of the shareholders, partners, members,
                  or other holders of equity in the Company or its current and
                  former officers, directors, and employees, or make to, or
                  solicit from, any third party, any comments, statements, and
                  the like that may be considered to be derogatory or
                  detrimental to the good name or business reputation of the
                  Company. The Company agrees that it shall take reasonable
                  action to prevent any employee of the Company from disparaging
                  the Employee or making any comments, statements and the like
                  that may be considered to be derogatory or detrimental to the
                  good name or business reputation of the Employee, and if the
                  Company becomes aware of any material violation of such
                  instruction to employees, the Company shall take reasonable
                  action to prevent the recurrence of such violation.

         16.      Statement of Understanding. By executing this Agreement,
                  Employee acknowledges that (a) Employee has been advised by
                  the Company in writing to consult with an attorney regarding
                  the terms of the Agreement; (b) Employee has consulted with an
                  attorney of her own choosing regarding the terms of the
                  Agreement; (c) any and all questions regarding the terms of
                  this Agreement have been asked and answered to Employee's
                  complete satisfaction; (d) Employee has read this Agreement
                  and fully understands its terms and their import; (e) except
                  as provided by this Agreement, Employee has no contractual
                  right or claim to the benefits described herein; (f) the
                  consideration provided for herein is good and valuable; (g)
                  Employee is entering into this Agreement voluntarily, of her
                  own free will, and without any coercion, undue influence,
                  threat, or intimidation of any kind or type whatsoever; and
                  (h) Employee is no longer an employee of the Company and its
                  subsidiaries effective on the Termination Date.

         17.      Controlling Law and Venue. This Agreement shall be subject to
                  and construed in accordance with the laws of the State of
                  Texas. Venue shall be in Dallas County, Texas for any disputes
                  arising out of the interpretation or enforcement of any of the
                  terms of this Agreement.

         18.      Binding Effect. This Agreement is binding on and inures to the
                  benefit of the Company, its successors and assigns, and on
                  Employee and Employee's heirs and assigns.

         19.      Cooperation and Further Assurances. In order to assist with
                  the transition following the termination of her employment
                  with the Company, Employee agrees to make herself available to
                  assist with such transition through and

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 10

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                  including August 31, 2003, in such manner as may be reasonably
                  requested by the Company. The Parties agree to execute and
                  deliver such other and further documents and take such other
                  action as may be reasonably necessary to more completely,
                  fully and/or correctly evidence or effect the intents and
                  purposes of this Agreement.

         20.      LEGAL COUNSEL. EMPLOYEE UNDERSTANDS THAT SHE IS WAIVING
                  IMPORTANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT AND, FURTHER,
                  THAT EMPLOYEE HAS CONSULTED WITH AN ATTORNEY OF HER CHOOSING
                  BEFORE SIGNING THIS AGREEMENT.

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 11

<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement freely and
voluntarily intending to be legally bound by it.

ACCEPTED AND AGREED TO BY:

EMPLOYEE

/s/ Nora I. Serrano
-------------------
Nora I. Serrano

August 14, 2003
Date

Address for Notice:

         5648 Dunlap Court
         Plano, Texas 75093

STATE OF TEXAS                         )
                                       )
COUNTY OF                              )

         BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Nora I. Serrano known to me to be the person whose name is subscribed
to the foregoing instrument and acknowledged to me that she executed the same
for the purposes and consideration therein expressed.

         GIVEN UNDER MY HAND AND SEAL OF OFFICE this                      day of
                        .

                                       _________________________________________
                                       Notary Public, State of Texas
                                       My commission expires: __________________

[SEAL]

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 12

<PAGE>

HOME INTERIORS & GIFTS, INC.

By: /s/ Kenneth J. Cichocki
    -----------------------
Name:  Kenneth J. Cichocki
Title: Senior Vice President of Finance


Date August 14, 2003

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 13

<PAGE>

                                    EXHIBIT A

            FORM OF 1998 NON-QUALIFIED STOCK OPTION AGREEMENT

THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO AN OPTION TO
REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1998 STOCK OPTION PLAN
FOR KEY EMPLOYEES AND THIS AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF
SUCH PLAN IS AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES.

                          HOME INTERIORS & GIFTS, INC.
                             1998 STOCK OPTION PLAN

            AMENDED AND RESTATED NON-QUALIFIED STOCK OPTION AGREEMENT
                                FOR KEY EMPLOYEES

                                 August 15, 2003

Ms. Nora I. Serrano
5648 Dunlap Ct.
Plano, TX 75093

Re:      Grant of Stock Option

Dear Nora:

         The Board of Directors of Home Interiors & Gifts, Inc. (the "Company")
has adopted the Company's 1998 Stock Option Plan (the "Plan") for certain
individuals and key employees of the Company and its Related Entities. A copy of
the Plan is being furnished to you concurrently with the execution of this
Option Agreement and shall be deemed a part of this Option Agreement as if fully
set forth herein. Unless the context otherwise requires, all capitalized terms
used but not otherwise defined herein shall have the meanings given such terms
in the Plan.

         The Company granted to you an option to purchase 5,000 shares of the
Common Stock of the Company under that certain Non-Qualified Stock Option
Agreement for Key Employees, dated November 1, 2000 (as amended as of March 18,
2002), and the option to purchase an additional 5,000 shares of the Common Stock
of the Company under that certain Non-Qualified Stock Option Agreement dated May
7, 2002 (collectively, the "Old Agreements"). The Old Agreements are hereby
amended and restated in their entirety.

EXHIBIT A TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 14

<PAGE>

         1.       The Grant.

                  The Company granted to you, effective as of November 1, 2000
(the "2000 Grant Date"), the right and option to purchase (the "2000 Option"),
in accordance with the terms and conditions set forth herein and in the Plan, an
aggregate of 5,000 shares of Common Stock of the Company (the "2000 Option
Shares"), at the Exercise Price (as hereinafter defined). The Company granted to
you, effective as of May 7, 2002 (the "2002 Grant Date," each of the 2000 Grant
Date and the 2002 Grant Date being a "Grant Date"), the right and option to
purchase (the "2002 Option," and collectively with the 2000 Option, the
"Option"), in accordance with the terms and conditions set forth herein and in
the Plan, an aggregate of 5,000 shares of Common Stock of the Company (the "2002
Option Shares," and collectively with the 2000 Option Shares, the "Option
Shares"), at the Exercise Price. As used herein, the term "Exercise Price" shall
mean a price equal to $18.05 per share, subject to the adjustments and
limitations set forth herein and in the Plan. The Option is intended to
constitute a Non-Qualified Option within the meaning of the Plan; however, you
should consult with your tax advisor concerning the proper reporting of any
federal or state tax liability that may arise as a result of the grant or
exercise of the Option.

         2.       Exercise.

                  (a)      For purposes of this Option Agreement, all of the
Option Shares shall be deemed "Vested Shares." The Option shall not be subject
to any requirements in the Plan for vesting or exercise relating to continuing
employment with the Company.

                  (b)      Subject to the relevant provisions and limitations
contained herein and in the Plan, you may exercise the Option to purchase all or
a portion of the applicable number of Vested Shares at any time prior to the
termination of the Option pursuant to this Option Agreement. In no event shall
you be entitled to exercise the Option for a fraction of a Vested Share.

                  (c)      The unexercised portion of the Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the applicable Grant Date.

                  (d)      Any exercise by you of the Option shall be in writing
addressed to the Secretary of the Company at its principal place of business (a
copy of the form of exercise to be used will be available upon written request
to the Secretary), and shall be accompanied by a certified or bank check payable
to the order of the Company in the full amount of the Exercise Price of the
shares so purchased, or in such other manner as described in the Plan and
established by the Committee.

                  (e)      Notwithstanding any provisions herein or in the Plan
to the contrary, in the event of a material breach by you of either that certain
Employment Agreement, dated as of November 1, 2001, as amended by that certain
Amendment to Employment Agreement, entered into as of December 12, 2002, or that
certain Confidential Separation Agreement and Release, dated as of August 15,
2003, you shall immediately and automatically forfeit to the Company, for no
consideration, the Option and all Option Shares (regardless of the fact that
they are Vested Shares).

EXHIBIT A TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 15
<PAGE>

         3.       Transferability.

                  Except as otherwise provided in Section 4 hereof, the Option
and any rights or interests therein are not assignable or transferable by you
except by will or the laws of descent and distribution, and during your
lifetime, the Option shall be exercisable only by you or, in the event that a
legal representative has been appointed in connection with your Disability, such
legal representative.

         4.       Purchase Option.

                  (a)      The Company shall have the Purchase Option on the
Option and the Option Shares set forth in clause (ii) of Section 9(a) of the
Plan (relating to a Change in Control); provided, however, that the Company
expressly disclaims the Purchase Option on the Option and the Option Shares set
forth in clause (i) of Section 9(a) of the Plan (relating to the termination of
your employment with the Company). If in accordance with the immediately
preceding sentence, the Company shall exercise such Purchase Option, you (or
your executor or the administrator of your estate or the Person who acquired the
right to exercise the Option by bequest or inheritance in the event of your
death, or your legal representative in the event of your incapacity
(hereinafter, collectively with such optionee, the "Grantor")) shall sell to the
Company and/or its assignee(s), all or any portion (at the Company's option) of
the Option Shares and/or the Option held by the Grantor (such Option Shares and
Option collectively being referred to as the "Purchasable Shares").

                  (b)      The Company shall give notice in writing to the
Grantor of the exercise of the Purchase Option within one (1) year from the date
the Purchase Option arises under the terms of the Plan. Such notice shall state
the number of Purchasable Shares to be purchased and the determination of the
Board of Directors of the Fair Market Value per share of such Purchasable
Shares. If no notice is given within the time limit specified above, the
Purchase Option shall terminate.

                  (c)      The purchase price to be paid for the Purchasable
Shares purchased pursuant to the Purchase Option shall be, in the case of any
Option Shares, the Fair Market Value per share as of the date of notice of
exercise of the Purchase Option times the number of shares being purchased, and
in the case of the Option, the Fair Market Value per share times the number of
Vested Shares subject to such Option which are being purchased, less the
applicable per share Exercise Price. The purchase price shall be paid in cash.
The closing of such purchase shall take place at the Company's principal
executive offices within ten (10) days after the purchase price has been
determined. At such closing, the Grantor shall deliver to the purchaser(s) the
certificates or instruments evidencing the Purchasable Shares being purchased,
duly endorsed (or accompanied by duly executed stock powers) and otherwise in
good form for delivery, against payment of the purchase price by check of the
purchaser(s). In the event that, notwithstanding the foregoing, the Grantor
shall have failed to obtain the release of any pledge or other encumbrance on
any Purchasable Shares by the scheduled closing date, at the option of the
purchaser(s) the closing shall nevertheless occur on such scheduled closing
date, with the cash

EXHIBIT A TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 16

<PAGE>

purchase price being reduced to the extent of all unpaid indebtedness for which
such Purchasable Shares are then pledged or encumbered.

                  (d)      To assure the enforceability of the Company's rights
under this Section 4, each certificate or instrument representing Option Shares
subject to this Option Agreement shall bear a conspicuous legend in
substantially the following form:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
                  OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE
                  COMPANY'S 1998 STOCK OPTION PLAN FOR KEY EMPLOYEES AND A STOCK
                  OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH
                  OPTION PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN
                  REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."

         5.       Registration.

                  The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities laws to permit exercise of the Option or to issue any Common Stock in
violation of the Securities Act or any applicable state securities laws. You (or
in the event of your death or, in the event a legal representative has been
appointed in connection with your Disability, the Person exercising the Option)
shall, as a condition to your right to exercise the Option, deliver to the
Company an agreement or certificate containing such representations, warranties
and covenants as the Company may deem necessary or appropriate to ensure that
the issuance of the Option Shares pursuant to such exercise is not required to
be registered under the Securities Act or any applicable state securities laws.

                  Certificates for the Option Shares, when issued, shall have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:

                  "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
                  BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                  OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
                  FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
                  UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
                  ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
                  OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
                  OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
                  VIOLATE APPLICABLE FEDERAL OR STATE LAWS."

EXHIBIT A TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 17

<PAGE>

                  The foregoing legend may not be required for Option Shares
issued pursuant to an effective registration statement under the Securities Act
and in accordance with applicable state securities laws.

         6.       Miscellaneous.

                  This Option Agreement is subject to all the terms, conditions,
limitations and restrictions contained in the Plan. In the event of any conflict
or inconsistency between the terms hereof and the terms of the Plan, the terms
of the Plan shall be controlling. The Old Agreements (being amended and restated
in their entirety hereby) shall be of no further force or effect.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

EXHIBIT A TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 18

<PAGE>

         Please indicate your acceptance of all the terms and conditions of the
Option and the Plan by signing and returning a copy of this Option Agreement.

                                              Very truly yours,

                                              HOME INTERIORS & GIFTS, INC.

                                              By: /s/ Donald J. Carter, Jr.
                                                  ------------------------------
                                                  Name: Donald J. Carter, Jr.
                                                  Title: Chief Executive Officer

 ACCEPTED:

/s/ Nora I. Serrano
------------------
 Nora I. Serrano

 Date: August 14, 2003

EXHIBIT A TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 19

<PAGE>

                                    EXHIBIT B

                FORM OF 2002 NON-QUALIFIED STOCK OPTION AGREEMENT

         THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO AN OPTION
         TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1998 STOCK
         OPTION PLAN FOR KEY EMPLOYEES AND THIS AGREEMENT ENTERED INTO PURSUANT
         THERETO. A COPY OF SUCH PLAN IS AVAILABLE UPON WRITTEN REQUEST TO THE
         COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.

                          HOME INTERIORS & GIFTS, INC.
                             2002 STOCK OPTION PLAN

                      NON-QUALIFIED STOCK OPTION AGREEMENT
                                FOR KEY EMPLOYEES

                                 August 15,2003

Ms. Nora I. Serrano
5648 Dunlap Ct.
Plano, TX 75093

Re:  Grant of Stock Option

Dear Nora:

         The Board of Directors of Home Interiors & Gifts, Inc., a Texas
corporation (the "Company") has adopted the Company's 2002 Stock Option Plan For
Key Employees (the "Plan") for certain individuals and key employees of the
Company and its Related Entities. A copy of the Plan is being furnished to you
concurrently with the execution of this Option Agreement and shall be deemed a
part of this Option Agreement as if fully set forth herein. Unless the context
otherwise requires, all capitalized terms used but no otherwise defined herein
shall have the meanings given such terms in the Plan.

         The Company granted to you an option to purchase 500,000 shares of the
Common Stock of the Company under that certain Non-Qualified Stock Option
Agreement for Key Employees, dated September 27, 2002 (the "Old Agreement"). The
Old Agreement is hereby amended and restated in its entirety.

         1.       The Grant.

                  The Company granted to you, effective as of September 27, 2002
(the "Grant Date"), the right and option to purchase (the "Option"), in
accordance with the terms and conditions set forth herein and in the Plan, an
aggregate of 500,000 shares of Common Stock of

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 20

<PAGE>

the Company (the "Option Shares" at the Exercise Price (as hereinafter
defined)). As used herein, the term "Exercise Price" shall mean a price equal to
$19.42 per share, subject to the adjustment and limitations set forth herein and
in the Plan. The Option is intended to constitute a Non-Qualified Option within
the meaning of the Plan; however, you should consult with your tax advisor
concerning the proper reporting of any federal or state tax liability that may
arise as a result of the grant or exercise of the Option.

         2.       Exercise.

                  (a)      For purposes of this Option Agreement, the Option
Shares shall be deemed "Nonvested Shares" unless and until they have become
"Vested Shares." The Option shall not be subject to any requirements in the Plan
for vesting or exercise relating to continuing employment with the Company.
Notwithstanding the foregoing sentence and anything to the contrary contained in
Section 6(c) of the Plan, however, and subject to the provisions of Section 2(c)
hereof, the Option shares shall become Vested Shares and shall become
exercisable only upon the achievement of the annual performance targets set
forth on Exhibit A attached hereto. Twenty percent (20%) of the Option Shares
shall become Vested Shares in accordance with the terms of the Plan upon the
achievement of each annual performance target; provided, however, that if for
any annual period the Equity Value Target for such period is not met, the number
of Option Shares that would have become Vested Shares upon the achievement in
any subsequent period of such Equity Value Target. In addition, in the event
that any future Equity Value Target is met in any annual period, the number of
Option Shares that would have become Vested Shares upon the achievement of such
future Equity Value Target in such subsequent annual period shall become Vested
Shares upon the achievement of such future Equity Value Target in the earlier
annual period regardless of whether the Equity Value Target in the earlier
annual period regardless of whether the Equity Value Target for such future
annual period is actually achieved in such future annual period.

                  (b)      Determinations with respect to whether an applicable
annual Equity Value Target has been achieved (and the accompanying computations
of EBITDA and Net Consolidated Debt) shall be made by the Board of Directors or
the Option Committee within 30 days after approval by the Board of Directors (or
other appropriate committee thereof) of the Company's audited financial
statements for the applicable fiscal year, and shall be final and binding on the
Company and the Optionee absent manifest error. Until such determination has
been made, no Option Shares shall be deemed to be Vested Shares for any purposes
hereunder (including for purposes of determining whether any Options may be
exercised in connection with any termination of employment that occurred to the
date of determination).

                  (c)      Upon the occurrence of a Change of Control,
irrespective of whether the annual performance targets set forth on Exhibit A
were achieved prior to the Change of Control Date (as defined in Exhibit A),
your Nonvested Shares shall become exercisable only as follows: Twenty Percent
(20%) of the Nonvested Shares shall become Vested Shares for each fiscal year in
which the Change of Control Equity Value (as defined in Exhibit A) equals or
exceeds the Equity Value Target for such fiscal year. In addition, in the event
that the Change of Control Equity Value exceeds an Equity Value Target for a
particular fiscal year but does not equal the Equity Value Target for the next
succeeding fiscal year, an additional twenty percent (20%) of your Unvested
Shares shall become Vested Shares. For example, if (i) a Change of Control
occurs during the fiscal year ended December 31, 2004, (ii) the Change of
Control Equity Value on the Change of Control

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 21

<PAGE>

Date was $750 million and (iii) none of your Option Shares had previously become
Vested Shares in accordance with Section 2(a) hereof, eighty percent (80%) of
your Option Shares would become Vested Shares and the remaining twenty percent
(20%) would constitute Unvested Shares.

                  (d)      Subject to the relevant provisions and limitations
contained herein and in the Plan, you may exercise the Option to purchase all or
a portion of the applicable number of Vested Shares at any time prior to the
termination of the Option pursuant to this Option Agreement. In no event shall
you be entitled to exercise the Option for a fraction of a Vested Share.

                  (e)      The unexercised portion of the Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the Grant Date.

                  (f)      Any exercise by you of the Option shall be in writing
addressed to the Secretary of the Company at its principal place of business (a
copy of the form of exercise to be used will be available upon written request
to the Secretary), and shall be accompanied by a certified or bank check payable
to the order of the Company in the full amount of the Exercise Price of the
shares so purchased, or in such other manner as described in the Plan and
established by the Committee.

                  (g)      Notwithstanding any provisions herein or in the Plan
to the contrary, in the event of a material breach by you of either that certain
Employment Agreement, dated as of November 1, 2001, as amended by that certain
Amendment to Employment Agreement, entered into as of December 12,2002, or that
certain Confidential Separation Agreement and Release, dated as of August 15,
2003, you shall immediately and automatically forfeit to the Company, for no
consideration, the Option and all Option Shares (regardless of whether they are
Vested Shares or Nonvested Shares).

         3.       Purchase Option.

                  (a)      The Company shall have the Purchase Option on the
Option and the Option Shares set forth in clause (ii) of Section 9(a) of the
Plan (relating to a Change in Control); provided, however, that the Company
expressly disclaims the Purchase Option on the Option and the Option Shares set
forth in clause (i) of Section 9(a) of the Plan (relating to the termination of
your employment with the Company). If, in accordance with the immediately
preceding sentence, the Company shall exercise such Purchase Option, you (or
your executor or the administrator of your estate or the Person who acquired the
right to exercise the Option by bequest or inheritance in the event of your
death, or your legal representative in the event of your incapacity
(hereinafter, collectively with such optionee, the "Grantor")) shall sell to the
Company and/or its assignee(s), all or any portion (at the Company's option) of
the Option Shares and/or the Option held by the Grantor (such Option Shares and
Option collectively being referred to as the "Purchasable Shares").

                  (b)      The Company shall give notice in writing to the
Grantor of the exercise of the Purchase Option within one (1) year from the date
the Purchase Option arises under the terms of the Plan. Such notice shall state
the number of Purchasable Shares to be purchased and the determination of the
Board of Directors of the Fair Market Value per share of such purchasable

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 22

<PAGE>

Shares. If no notice is given within the time limit specified above, the
Purchase Option shall terminate.

                  (c)      The purchase price to be paid for the Purchasable
Shares purchased pursuant to the Purchase Option shall be, in the case of any
Option Shares, the Fair Market Value per share as of the date of notice of
exercise of the purchase Option times the number of shares being purchased, and
in the case of the Option, the Fair Market Value per share times the number of
Vested Shares subject to such Option which are being purchased, less the
applicable per share Exercise Price. The purchase price shall be paid in cash.
The closing of such purchase shall take place at the Company's principal
executive offices within ten (10) days after the purchase price has been
determined. At such closing, the Grantor shall deliver to the purchaser(s) the
certificates or instruments evidencing the Purchasable Shares being purchased,
duly endorsed (or accompanied by duly executed stock powers) and otherwise in
good form for delivery, against payment of the purchase price by check of the
purchase(s). In the event that, notwithstanding the foregoing, the Grantor shall
have failed to obtain the release of any pledge or other encumbrance on any
Purchasable Shares by the scheduled closing date, at the option of the
purchaser(s) the closing shall nevertheless occur on such scheduled closing
date, with the cash purchase price being reduced to the extent of all unpaid
indebtedness for which such Purchasable Shares are then pledged or encumbered.

                  (d)      To assure the enforceability of the Company's rights
under this Section 3, each certificate or instrument representing Option Shares
subject to this Option Agreement shall bear a conspicuous legend in
substantially the following form:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
                  OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE
                  COMPANY'S 2002 STOCK OPTION PLAN FOR KEY EMPLOYEES AND A STOCK
                  OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH
                  OPTION PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN
                  REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."

         4.       Registration.

                  The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities laws to permit exercise of the Option or to issue any Common Stock in
violation of the Securities Act or any applicable sate securities laws. You (or
in the event of your death or, in the event a legal representative has been
appointed in connection with your Disability, the Person exercising the Option)
shall, as a condition to your right to exercise the Option, deliver to the
Company an agreement or certificate containing such representations, warranties
and covenants as the Company may deem necessary or appropriate to ensure that
the issuance of the Option Shares pursuant to such exercise is not required to
be registered under the Securities Act or any applicable state securities laws.

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 23

<PAGE>

                  Certificates for the Option Shares, when issued, shall have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:

                  "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
                  BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                  OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
                  FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
                  UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
                  ISSUER (WHICH, IN THE DISCRETION of THE ISSUER, MAY INCLUDE AN
                  OPTION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER,
                  SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE
                  APPLICABLE FEDERAL OR STATE LAWS."

                  The foregoing legend may not be required for Option Shares
issued pursuant to an effective registration statement under the Securities Act
and in accordance with applicable state securities laws.

         5.       Miscellaneous.

                  This Option Agreement is subject to all the terms, conditions,
limitations and restrictions contained in the Plan. In the event of any conflict
or inconsistency between the terms hereof and the Plan, the Plan shall be
controlling. The Old Agreement (being amended and restated in its entirety
hereby) shall be of no further force or effect.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 24

<PAGE>

         Please indicate your acceptance of all the terms and conditions of the
Option, and the Plan by signing and returning a copy of this Option Agreement.

                                            Very truly yours,

                                            HOME INTERIORS & GIFTS, INC.

                                            By: /s/ Donald J. Carter, Jr.
                                                --------------------------------
                                            Name:  Donald J. Carter, Jr.
                                            Title: Chief Executive Officer

ACCEPTED:

/s/ Nora I. Serrano
-------------------
Nora I. Serrano

Date: August 14, 2003

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 25

<PAGE>

                                    Exhibit A

                                Vesting Schedule

<TABLE>
<CAPTION>
                     PERCENT OF ORIGINAL
FISCAL YEAR ENDED       OPTION SHARES        EQUITY VALUE TARGET(1)
-----------------    -------------------     ----------------------
<S>                  <C>                     <C>
December 31, 2002            20%                $   430 million

December 31, 2003            20%                $   555 million

December 31, 2004            20%                $   670 million

December 31, 2005            20%                $   885 million

December 31, 2006            20%                $ 1,090 million
</TABLE>

Definitions: The following definitions shall be used in calculating the Equity
Value Target.

"EBITDA" has the meaning given to such term in the Amended and Restated Credit
Agreement, dated June 30, 2001, among the Company, Bank of America, N.A., as
administrative agent, The Chase Manhattan Bank, as syndication agent, Citicorp,
USA, Inc. and Societe Generale, as co-agents, and the lenders from time to time
party thereto, as the same may be amended from time to time.

"EQUITY VALUE" means the product of EBITDA as of the end of the applicable
fiscal year times seven and one-half (7 1/2) less the average Net Consolidated
Debt outstanding at the end of such fiscal year. The calculation of Equity Value
shall be made by the Board of Directors or the Option Committee and shall be
final and binding on the Company and the Employee absent manifest error.

"INDEBTEDNESS" means, any indebtedness, whether or not contingent, in respect of
borrowed money determined in accordance with generally accepted accounting
principles.

"NET CONSOLIDATED DEBT" means the aggregate amount of Indebtedness of the
Company and its subsidiaries on a consolidated basis outstanding as of the end
of the applicable fiscal year less cash and cash equivalents of the Company and
its subsidiaries on a consolidated basis as of the end of the applicable fiscal
year.

/s/ Nora I. Serrano
-------------------
Nora I. Serrano

Date: August 14, 2003

---------------
(1) The Employee acknowledges and agrees that the Committee has the right to
amend the Equity Value Target for any annual period to reflect changes in the
Company's business, including, without limitation, to reflect the acquisition or
divestiture of a Related Entity) or for such other reasons as it deems
appropriate.

EXHIBIT B TO CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE - Page 26