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                                                                    EXHIBIT 10.7

                              SETTLEMENT AGREEMENT,
                     GENERAL RELEASE AND COVENANT NOT TO SUE


     This Settlement Agreement, General Release and Covenant Not to Sue
("Agreement") is made and entered into as of the 30th day of November, 1997,
by and between LOUIS J. GRABOWSKY ("Employee") and ZALE DELAWARE, INC. ("Zale"),
hereinafter collectively referred to as the "parties".


                                    RECITALS

     WHEREAS, Employee has been employed by Zale as Executive Vice President and
CFO;

     WHEREAS, Employee and Zale executed an Employment Agreement on August 1,
1997 which covered the terms and conditions of Employee's employment with Zale;

     WHEREAS, Employee voluntarily resigned his employment with Zale effective
December 15, 1997 (the "Termination Date"); 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 in no way limited to, any and all claims and controversies arising out of
the employment relationship between Employee and Zale, including, but not
limited to, the Employment Agreement, and Employee's resignation of his
employment with Zale;

     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. Employee, for himself and on behalf of his attorneys, heirs, assigns,
successors, executors, and administrators IRREVOCABLY AND UNCONDITIONALLY
RELEASE, ACQUIT, AND FOREVER DISCHARGE Zale, its current and former parent,
subsidiary, affiliated, and related corporations, firms, associations,
partnerships, and entities, their successors and assigns, and the current and
former owners, shareholders, directors, officers, employees, agents, attorneys,
representatives, and insurers of said corporations, firms, associations,
partnerships, and entities, and their guardians, successors, assigns, heirs,
executors, and administrators (hereinafter collectively referred to as the
"Releasees") from any and all claims, complaints, grievances, liabilities,
obligations, promises, agreements, damages, causes of action, rights, debts,
demands, controversies, costs, losses, and expenses (including attorneys' fees
and expenses) whatsoever, other than any arising under this Agreement, under any
municipal, local, state, or federal law, common or statutory -- including, but
in no way limited to, claims arising under the Employment Agreement between the
parties, the AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, 29 U.S.C. Section
621, et seq.; TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, as amended; TEXAS
COMMISSION ON HUMAN RIGHTS ACT -- for any

SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE - PAGE 1

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actions or omissions whatsoever, whether known or unknown and whether connected
with the employment of Employee by Zale, or the resignation therefrom, or not,
which existed or may have existed prior to, or contemporaneously with, the
execution of this Agreement.

     2. Zale, for itself and on behalf of its current and former parent,
subsidiary, affiliated and related corporations, firms, associations,
partnerships, and entities, their successors and assigns, and the current and
former owners, shareholders, directors, officers, employees, agents, attorneys,
representatives, and insurers of said corporations, firms, associations,
partnerships, and entities, and their guardians, successors, assigns, heirs,
executors, and administrators hereby IRREVOCABLY AND UNCONDITIONALLY RELEASES,
ACQUITS, AND FOREVER DISCHARGES Employee, from any and all claims, complaints,
grievances, liabilities, obligations, promises, agreements, damages, causes of
action, rights, debts, demands, controversies, costs, losses, and expenses
(including attorneys' fees and expenses) whatsoever, other than any arising
under this Agreement, under any municipal, local, state, or federal law, common
or statutory -- including, but in no way limited to, claims arising under the
Employment Agreement between the parties-- for any actions or omissions
whatsoever, whether known or unknown and whether connected with the employment
of Employee by Zale, or the resignation therefrom, or not, which existed or may
have existed prior to, or contemporaneously with, the execution of this
Agreement.

     3. Employee, for himself and on behalf of his attorneys, 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 1 of this Agreement.

     4. Zale, for itself and on behalf of all Releasees, COVENANTS NOT TO SUE,
OR OTHERWISE CONSENT TO PARTICIPATE IN ANY ACTION AGAINST Employee, based upon
any of the claims released in paragraph 2 of this Agreement.

     5. The parties agree that they will keep the terms, amount, reasons for and
existence of this Agreement STRICTLY AND COMPLETELY CONFIDENTIAL, and that they
will not communicate or otherwise disclose to any employee of Zale (past,
present, or future), or to a member of the general public, the terms, amount,
reasons for and existence of this Agreement, except as may be required by law or
compulsory process. If asked about any of such matters, Employee's and Zale's
response shall be that they do not care to discuss any of such matters. Employee
may indicate to prospective employers that he left Zale to seek a position of
greater responsibility and opportunity. In the event of a breach of this
paragraph of the Agreement by Employee, Zale may suspend any payments due under
this Agreement pending the outcome of litigation or arbitration regarding such
claimed breach of this Agreement by Employee.

     6. Employee waives and releases forever any right or rights he might have
to employment, reemployment, or reinstatement with Zale or any of the other
Releasees.

     7. Employee agrees that in addition to resigning his employment with Zale,
he shall also resign, effective December 15, 1997, from any other positions he
holds as a director, officer, or employee with any of the Releasees.


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     8. Employee and Zale specifically agree that following the execution of
this Agreement, neither party shall be bound by any of the terms of the
Employment Agreement executed by the parties on August 1, 1997.

     9. Upon the expiration of seven (7) days of Employee's execution of this
Agreement, the parties agree as follows:

     (a) Zale agrees to pay Employee his Base Salary of Three Hundred
Twenty-Five Thousand Dollars ($325,000.00) ("Salary") for a period of eighteen
months ("Severance Period") which is the equivalent of Four Hundred Eighty-Seven
Thousand Five Hundred Dollars ($487,500.00) ("Severance Payments") less
deductions required by law in consideration for the promises, covenants,
agreements, and releases, set forth herein. The Severance Payments described in
this paragraph shall be paid to Employee at Zale's regular pay periods during
the Severance Period by continuing the direct deposit in effect at present.

     (b) Zale agrees to provide Employee and his family medical benefits for
which he was entitled at the time of his resignation for a period of eighteen
(18) months. Zale will also continue employees life and disability insurance on
the same basis as it exists as of the date of this agreement for a period of
eighteen (18) months. In the event that Employee becomes eligible to receive
medical, disability and life insurance benefits from another employer during the
eighteen month period, he shall promptly notify Zale, and Zale's obligation to
provide medical, disability and life insurance benefits under this agreement
shall cease.

     (c) Zale agrees to permit Employee to use his remaining accrued vacation
time for the period December 1, 1997 until December 15, 1997 at his current rate
of pay provided Employee agrees never to return to Zale's corporate offices
without invitation or appointment as of the date of the execution of this
Agreement, and further agrees to return to Zale or its attorneys his employee
identification badge, keys and Company-owned equipment by November 30, 1997.

     (d) Employee shall be obligated to use all reasonable efforts to secure new
employment (whether as an employee, independent contractor, or consultant)
during the Severance Period, provided that Employee is not obligated to accept
any position: in the Dallas-Ft Worth area in which the base salary is less than
Three Hundred Twenty-Five Thousand Dollars ($325,000.00); outside of the
Dallas-Ft Worth area in which the base salary is less than four hundred
Twenty-Five Thousand Dollars (425,000.00) . In the event that Employee secures
new employment during the Severance Period, he shall promptly notify Zale of
that fact in writing. Zale's obligation to pay the Severance Payments required
by paragraph 9(a) shall be offset by any monies earned by Employee during the
Severance Period regardless of the amount of monies earned. If Employee's new
position pays him the equivalent of his Salary or greater, Zale's obligation to
pay the Severance Payments shall cease.

     (e) Zale agrees to provide Employee outplacement assistance with
Challenger, Gray & Christmas for three (3) months.

     10. Zale and only Zale shall issue a press release to announce Employee's
resignation from Zale. The press release will include information indicating
Employee resigned "to pursue other interests." Employee specifically agrees not
to issue any public statement concerning his employment at Zale and his
resignation from such employment.


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     11. Employee acknowledges that he has had access to and become familiar
with various trade secrets and proprietary and confidential information of Zale,
its subsidiaries and affiliates, including, but not limited to, processes,
computer programs, compilations of information, records, sales procedures,
customer requirements, pricing techniques, customer lists, methods of doing
business and other confidential information (collectively, referred to as "Trade
Secrets") which are owned by Zale, its subsidiaries and/or affiliates and
regularly used in the operation of its business, and as to which Zale, its
subsidiaries and/or affiliates take precautions to prevent dissemination to
persons other than certain directors, officers and employees. Employee
acknowledges and agrees that the Trade Secrets (1) are secret and not known in
the industry; (2) give the Company or its subsidiaries and/or affiliates an
advantage over competitors who do not know or use the Trade Secrets; (3) are of
such value and nature as to make it reasonable and necessary to protect and
preserve the confidentiality and secrecy of the Trade Secrets; and (4) are
valuable and special and unique assets of Zale or its subsidiaries and/or
affiliates, the disclosure of which could cause substantial injury and loss of
profits and goodwill to Zale or its subsidiaries and/or affiliates. Employee may
not use in any way or disclose any of the Trade Secrets, directly or indirectly,
at any time in the future, except as required in connection with a judicial or
administrative proceeding, or if the information becomes public knowledge other
than as a result of an unauthorized disclosure by the Employee. All files,
records, documents, information, data, and similar items relating to the
business of Zale, whether prepared by Employee or otherwise coming into his
possession, will remain the exclusive property of Zale, and in any event must be
promptly delivered to Zale upon execution of this Agreement. Employee agrees
upon his receipt of any subpoena, process, or other request to produce or
divulge, directly or indirectly, any Trade Secrets to any entity, agency,
tribunal, or person, Employee shall timely notify and promptly hand deliver a
copy of the subpoena, process or other request to Zale. For this purpose,
Employee irrevocably nominates and appoints Zale (including any attorney
retained by Zale), as his true and lawful attorney-in-fact, to act in Employee's
name, place and stead to perform any act that Employee might perform to defend
and protect against any disclosure of any Trade Secret.

     12. Employee acknowledges and agrees that he shall not for two years
following his resignation from Zale on his own behalf or on behalf of any other
person, partnership, association, corporation, or other entity, solicit or in
any manner attempt to influence or induce any employee of Zale or its
subsidiaries or affiliates (known by the Employee to be such) to leave the
employment of Zale or its subsidiaries or affiliates, nor shall he use or
disclose to any person, partnership, association, corporation, or other entity
any information obtained while an employee of Zale concerning the names and
addresses of Zale's employees.

     13. Employee agrees to cooperate fully with Zale, specifically including
any attorney retained by Zale, in connection with any pending or future
litigation, business, or investigatory matter. The parties acknowledge and agree
that such cooperation may include, but shall in no way be limited to, Employee's
making himself available for interview by Zale, or any attorney retained by
Zale, and providing to Zale any documents in his possession or under his control
relating to the litigation, business, or investigatory matter. Zale agrees to
provide Employee with reasonable notice of the need for assistance when
feasible. Zale additionally agrees to schedule such assistance in such a manner
as not to interfere with any alternative employment obtained by Employee when
possible. If the request for assistance occurs after the cessation of payments
contemplated by paragraph 9 above, Employee shall be reimbursed for the
reasonable cost of his time.


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     14. The parties hereto recognize that, by entering into this Agreement, the
parties do not admit, and do specifically deny, any violation of any contract,
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 which might be asserted by the parties against one another in connection
with the Employment Agreement, Employee's employment by Zale, or the resignation
thereof, and to avoid the expense and burden of any litigation related thereto.

     15. The parties acknowledge and agree that in the event either party to
this Agreement breaches any provision of this Agreement the Party claiming
breach will be entitled to such relief as is available to it at law or equity.
Zale may suspend any payments due under this Agreement pending the outcome of
litigation or arbitration regarding any claimed breach of this Agreement. The
prevailing party in any litigation or arbitration resulting from any such claim
shall be entitled to recover attorney's fees and expenses of litigation or
arbitration from the losing party.

     16. The parties agree that the exclusive remedy or method of resolving all
disputes or questions arising out of or related to this Agreement shall be
arbitration. Arbitration shall be held in Dallas, Texas, by three arbitrators,
one to be appointed by Zale, a second to be appointed by Employee, and a third
to be appointed by those two arbitrators. The third arbitrator shall act as
chairman. Any arbitration may be initiated by either party upon written notice
("Arbitration Notice") to the other party, specifying the subject of the
requested arbitration and appointing that party's arbitrator.

     (a) If (i) the non-initiating party fails to appoint an arbitrator by
written notice to the initiating party within ten days after the Arbitration
Notice, or (ii) the two arbitrators appointed by the Parties fail to appoint a
third arbitrator within ten days after the date of the appointment of the second
arbitrator, the American Arbitration Association, upon application of the
initiating party, shall appoint an arbitrator to fill that position.

     (b) The arbitration proceeding shall be conducted in accordance with the
rules of the American Arbitration Association. A determination or award made or
approved by at least two of the arbitrators shall be the valid and binding
action of the arbitrators. The costs of arbitration (inclusive of the expense in
obtaining and presenting evidence and attending the arbitration and of the fees
and expenses of legal counsel to a party) shall be borne by the Party receiving
substantially the relief sought by him in the arbitration, whether by
settlement, award, or judgment; otherwise, the costs shall be borne equally
between the Parties. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered and
enforced in any court of competent jurisdiction.

     17. One or more waivers of a breach of any covenant, term, or provision of
this Agreement by any party shall not be construed as a waiver of a subsequent
breach of the same covenant, term, or provision, nor shall it be considered a
waiver of any other then existing or subsequent breach of a different covenant,
term, or provision.

     18. 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, invalid, 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


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shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of each 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 provision, as may be possible and that is legal,
valid, and enforceable.

     19. Either party may revoke this Agreement by notice to the other party, in
writing, within seven (7) days of the date of its execution by Employee (the
"Revocation Period"). Employee agrees that he will not receive the benefits
provided by this Agreement if he revokes this Agreement. Employee also
acknowledges and agrees that if Zale has not received from him notice of his
revocation of this Agreement prior to the expiration of the Revocation Period,
Employee will have forever waived his right to revoke this Agreement and this
Agreement shall thereafter be enforceable and have full force and effect.

     20. This Agreement constitutes the entire Agreement of the parties, and
supersedes all prior and contemporaneous negotiations and agreements, oral or
written. All 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.

     21. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, except where preempted by federal law.

     22. By executing this Agreement, Employee acknowledges that (a) this
Agreement has been reviewed with him by a representative of Zale ; (b) he has
had at least twenty-one (21) days to consider the terms of this Agreement and
has considered its terms for that period of time or has knowingly and
voluntarily waived his right to do so; (c) he has been advised by Zale to
consult with an attorney regarding the terms of this Agreement; (d) he has
consulted with, or has had sufficient opportunity to consult with, an attorney
of his own choosing regarding the terms of this Agreement; (e) any and all
questions regarding the terms of this Agreement have been asked and answered to
his complete satisfaction; (f) he has read this Agreement and fully understands
its terms and their import; (g) except as provided by this Agreement, he has no
contractual right or claim to the benefits described herein; (h) the
consideration provided for herein is good and valuable; and (i) HE IS ENTERING
INTO THIS AGREEMENT VOLUNTARILY, OF HIS OWN FREE WILL, AND WITHOUT ANY COERCION,
UNDUE INFLUENCE, THREAT, OR INTIMIDATION OF ANY KIND OR TYPE WHATSOEVER.


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        EXECUTED in Dallas, Texas this 30 day of November, 1997.



                                       /s/ LOUIS J. GRABOWSKY
                                       -----------------------------
                                       Louis J. Grabowsky





THE STATE OF TEXAS                     )
                                       )
COUNTY OF DALLAS                       )


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


     GIVEN UNDER MY HAND AND SEAL OF OFFICE this day 30th of November, 1997.




                                       /s/ GLORIA CASTILLO              [SEAL]
                                       ---------------------------------      
                                       Notary Public, State of Texas


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        EXECUTED in Dallas, Texas this 30th day of November, 1997.


                                       ZALE DELAWARE, INC.


                                  By:  /s/ROBERT J. DINICOLA
                                       -------------------------------

                                  Its: CEO
                                       -------------------------------






THE STATE OF TEXAS                         )
                                           )
COUNTY OF DALLAS                           )


     BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Robert J. DiNicola of ZALE DELAWARE, INC., known to me to be the person
whose name is subscribed to the foregoing instrument and acknowledged to me that
he/she executed the same as the act of ZALE DELAWARE, INC. for the purposes and
consideration therein expressed.


     GIVEN UNDER MY HAND AND SEAL OF OFFICE this 30th day of November, 1997.



                                       /s/ LINDA G. MCKIE               [SEAL]
                                       ---------------------------------
                                       Linda G. McKie
                                       Notary Public, State of Texas



         [SEAL]

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