**Exhibit 10.14**
**ZALE CORPORATION**
**CHANGE OF CONTROL AGREEMENT**
     This Change of Control Agreement (“Agreement”) dated as of this       day ofAugust 2004, between Zale Corporation (the “Company”), and                   (the“Key Employee”).
     WHEREAS, the Company’s Board of Directors has determined that it is in thebest interests of the Company to provide certain benefits to the Key Employeeupon termination of employment as a result of a Change of Control of theCompany; and
     WHEREAS, the severance benefits payable by the Company to the Key Employeeas provided herein are intended to ensure that the Key Employee receivesreasonable compensation given the specific circumstances of the Key Employee’semployment history with the Company;
     NOW, THEREFORE, the Company adopts this Agreement to evidence theCompany’s commitment to pay severance benefits to the Key Employee if the KeyEmployee’s employment with the Company terminates under the circumstancesdescribed herein.
     1. Effect on Other Plans Sponsored by the Company. The benefits payableunder this Agreement are in addition to the coverage and benefits generallyafforded to the Key Employee upon termination from the service of the Companyand any other programs sponsored by the Company including, but not limited to,the Company’s severance and stock option plans.
     2. Definitions. The capitalized terms used in this Agreement shall havethe meaning set forth below.
     (a) “Annual Compensation” shall mean the Key Employee’s rate of basesalary paid or payable for the Company’s fiscal year by the Company and anyincentive or bonus award paid or payable to the Key Employee for such fiscalyear.
     (b) “Board” shall mean the Board of Directors of Zale Corporation.
     (c) “Cause” shall mean (i) if the Key Employee is a party to a writtenemployment agreement with the Company, or any parent corporation or subsidiarycorporation thereof, which agreement contains a definition of “for good cause”or “for cause” (or words of like import) for purposes of termination ofemployment thereunder by the Company, or such parent corporation or subsidiarycorporation of the Company, “for good cause” or “for cause” as defined therein;or (ii) in all other cases: (A) the wanton or willful commission by the KeyEmployee of an act, or the wanton or willful omission or failure to act, thatcauses substantial damage (by reason, without limitation, of financial exposureor loss, or damage to reputation or goodwill) to the Company or any parentcorporation or subsidiary corporation thereof; (B) the commission by the KeyEmployee of an act of fraud, intentional misrepresentation, embezzlement,misappropriation or conversion in the performance of such Key Employee’s dutieson behalf of the Company, or any parent corporation or subsidiary corporationthereof, and (C) conviction of the Key Employee for commission of a felony.
 

 

     (d) “Change of Control” shall mean the date as of which: (i) there shallbe consummated (A) any consolidation or merger of the Company in which theCompany is not the continuing or surviving corporation or pursuant to whichshares of the Company’s common stock would be converted into cash, securitiesor other property, other than a merger of the Company in which the holders ofthe Company’s common stock immediately prior to the merger have the sameproportionate ownership of common stock of the surviving corporationimmediately after the merger, or (B) any sale, lease, exchange or othertransfer (in one transaction or a series of related transactions) of all, orsubstantially all, of the property and assets of the Company and itssubsidiaries taken as a whole; or (ii) the stockholders of the Company approveany plan or proposal for the liquidation or dissolution of the Company; or(iii) any person (as such term is used in Sections 13(d) and 14(d) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)), shall becomethe beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)of 30% of the Company’s outstanding voting equity securities; or (iv) duringany period of two consecutive years, individuals who at the beginning of suchperiod constitute the entire board of directors of the Company shall cease forany reason to constitute a majority thereof unless the election, or thenomination for election by the Company’s stockholders, of each new directorwas approved by a vote of at least two-thirds of the directors then still inoffice who were directors at the beginning of the period.
     (e) “Code” shall mean the Internal Revenue Code of 1986, as amended.
     (f) “Disability” shall mean termination of the Key Employee’s employmentby the Company as a result of the Key Employee’s incapacity due to physical ormental illness or injury, provided that the Key Employee shall have been absentfrom the Key Employee’s duties with the Company on a full-time basis for atleast six consecutive months. The Compensation Committee of the Board shallmake any such determination with respect to a Key Employee hereunder.
     (g) “Good Reason” shall mean any of the following actions taken by theCompany without the Key Employee’s written consent after a Change of Control:
     (i) The assignment to the Key Employee of duties inconsistent with,or the reduction of the powers and functions associated with, the KeyEmployee’s position, duties, responsibilities and status immediatelyprior to a Change of Control or Potential Change of Control (as definedbelow), or an adverse change in the Key Employee’s titles or offices asin effect immediately prior to a Change of Control or Potential Change ofControl, or any removal of the Key Employee from or any failure tore-elect the Key Employee to any of such positions, except in connectionwith the termination of the Key Employee’s employment for Disability orCause or as a result of the Key Employee’s death or by the Key Employeeother than for Good Reason;
     (ii) A reduction in the Key Employee’s base salary as in effect onthe date of a Change of Control or Potential Change of Control, or as thesame may be increased from time to time during the term of thisAgreement, or the failure to increase (within 12 months of the KeyEmployee’s last increase in base salary) the Key Employee’s base salaryafter a Change of Control or Potential Chance of Control, unless suchfailure is the
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result of (A) a hiring or salary freeze uniformly applied to allemployees or (B) the Key Employee’s failure to meet preestablished andobjective performance criteria;
     (iii) Company’s principal executive offices shall be moved to alocation outside Dallas County, Texas;
     (iv) The Key Employee shall be required to be based anywhere otherthan at the Company’s principal executive offices or the location wherethe Key Employee is based on the date of a Change of Control, orPotential Change of Control, or if the Key Employee agrees to suchrelocation, the Company fails to reimburse the Key Employee for movingand all other expenses incurred with such move;
     (v) The Company shall fail to continue in effect anyemployer-sponsored plan or benefit that is in effect on the date of the aChange of Control or Potential Change of Control that provides (A)incentive or bonus compensation, (B) fringe benefits such as vacation,medical benefits, life insurance and accident insurance, (C)reimbursement for reasonable expenses incurred by the Key Employee inconnection with the performance of duties with the Company, and (D)pension benefits such as a Code Section 401(k) plan;
     (vi) Any material breach by the Company of any provision of thisAgreement; and
     (vii) Any failure by the Company to obtain the assumption of thisAgreement by any successor or assign of the Company effected inaccordance with the provisions of Section 6.
     (h) “Potential Change of Control” shall mean the date as of which (i) theCompany enters into an agreement the consummation of which, or the approval byshareholders of which, would constitute a Change of Control; (ii) proxies forthe election of Directors of the Company are solicited by anyone other than theCompany; (iii) any person (including, but not limited to, any individual,partnership, joint venture, corporation, association or trust) publiclyannounces an intention to take or to consider taking actions which, ifconsummated, would constitute a Change of Control; or (iv) any other eventoccurs which is deemed to be a Potential Change of Control by the Board and theBoard adopts a resolution to the effect that a Potential Change of Control hasoccurred.
     3. Term. The term of this Agreement shall be for the one-year periodcommencing on the date of this Agreement and shall continue in effect for eachsuccessive one-year period thereafter unless terminated in accordance with thisparagraph. This Agreement shall terminate upon the earliest of (a) the date oftermination of the Key Employee’s employment by the Company if no benefits arepayable hereunder; (b) the date the Company satisfies its obligation, if any,to make payments and provide benefits to the Key Employee pursuant to thisAgreement; and (c) the termination of this Agreement in accordance with theprovisions of Section 12 prior to the date the Key Employee terminatesemployment with the Company.
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     4. Termination of Employment Following Change of Control. (a) Except asotherwise provided under Section 4(b), below, if within two years following aChange of Control the Key Employee terminates employment with the Company forGood Reason or the Company terminates the Key Employee’s employment for anyreason other than Cause or Disability, the Company shall pay or provide to theKey Employee the following benefits:
     (i) an amount equal to three times the Key Employee’s average AnnualCompensation for any fiscal year beginning with or within the three-year periodterminating on the date of termination of the Key Employee’s employment, whichamount shall be paid to the Key Employee in cash on or before the fifth dayfollowing the date of termination;
     (ii) for a period of three years following the date of termination ofemployment, the Key Employee and anyone entitled to claim under or through theKey Employee shall be entitled to all benefits under the group health careplan, dental care plan, life or other insurance or death benefit plan, or otherpresent of future similar group employee benefit plan or program with respectto which key executives are eligible to participate at the date of a Change ofControl, to the same extent as if the Key Employee had continued to be anemployee during such period and such benefits shall, to the extent not fullypaid under any such plan or program, be paid by the Company; and
     (iii) a lump sum payment equal to the actuarial equivalent (determined bythe Company in good faith with the assistance of its accountants or actuaries)of the benefit that would have accrued under the Zale Delaware, Inc.Supplemental Executive Retirement Plan (“SERP”) if (a) the Key Employeeremained a participant in the SERP for the three-year period commencing on thefirst day of the SERP’s plan year (“Plan Year”) in which the Key Employee’semployment with the Company terminated (“Measurement Period”), (b ) during eachPlan Year in the Measurement Period the Key Employee earned Benefit Pointsequal to the highest number of Benefit Points earned by such Key Employee in aPlan Year during the three-year period ending on the last day of the Plan Yearimmediately preceding the Plan Year in which the Key Employee’s employment withthe Company terminated, and ( c) the Key Employee’s Final Average Pay duringthe Measurement Period is the greater of the Key Employee’s monthly Base Salaryon the date of (1) a Potential Change of Control, (2) the Change of Control or(3) the date of the Key Employee’s termination of employment.
     (b) In the event that (i) the Key Employee would otherwise be entitled tothe compensation and benefits described in Section 4(a) hereof (“CompensationPayments”), and (ii) the Company determines, based upon the advice of taxcounsel selected by the Company’s audit committee and acceptable to the KeyEmployee, that, as a result of such Compensation Payments and any otherbenefits or payments required to be taken into account under Code Section280G(b)(2) (“Parachute Payments”), any of such Parachute Payments would bereportable by the company as “excess parachute payments,” such CompensationPayments shall be reduced to the extent necessary to cause the Key Employee’sParachute Payments to equal 2.99 times the “base amount” as defined in CodeSection 280G(b)(3) with respect to such Key Employee. However, such reductionin the Compensation Payments shall be made only if, in the opinion of such taxcounsel, it would result in a larger Parachute Payment to the Key Employee thanpayment of the unreduced Parachute Payments after deduction of the tax imposedon and payable by the Key Employee under Section 4999 of the Code. The value ofany non-cash benefits or any deferred
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payment or benefit for purposes of this paragraph shall be determined bythe Company’s tax counsel selected by the Company’s audit committee.
     (c) The parties hereto agree that the payments provided under Section 4(a)or (b) above, as the case may be, are reasonable compensation in light of theKey Employee’s services rendered to the Company and that neither party shallcontest the payment of such benefits as constituting an “excess parachutepayment” within the meaning of Section 280G(b)(1) of the Code.
     (d) Unless the Company determines that any Parachute Payments madehereunder must be reported as “excess parachute payments” in accordance withSection 4(b) above, neither party shall file any return taking the positionthat the payment of such benefits constitutes an “excess parachute payment”within the meaning of Section 280G(b)(1) of the Code.
     5. No Obligation to Mitigate Damages. The Key Employee shall not berequired to mitigate damages or the amount of any payment provided for underthis Agreement by seeking other employment or otherwise, nor shall the amountof any payment provided for under this Agreement be reduced by any compensationearned by the Key Employee as the result of employment by another employerafter the Key Employee’s termination, or otherwise.
     6. Successor to the Company. The Company will require any successor orassign (whether direct or indirect, by purchase, exchange, lease, merger,consolidation or otherwise) to all or substantially all of the property andassets of the Company and its subsidiaries taken as whole, expressly,absolutely and unconditionally to assume and agree to perform the obligationsof the Company under this Agreement in the same manner and to the same extentthat the Company would be required to perform such obligations if no suchsuccession or assignment had taken place.
     7. Miscellaneous. No provisions of this Agreement may be waived ormodified unless such waiver or modification is agreed to in a writing signed bythe Key Employee and the Company. No waiver by either party hereto at any timeof any breach by the other party hereto of, or compliance with, any conditionor provision of this Agreement to be performed by such other party shall bedeemed a waiver of similar or dissimilar provisions or conditions at the sameor at any prior or subsequent time. No agreements or representations, oral orotherwise, express or implied, with respect to the subject matter hereof havebeen made by either party which are not set forth expressly in this Agreement.This Agreement shall be governed by and construed in accordance with the lawsof the State of Delaware.
     8. Validity. The invalidity or unenforceability of any provisions of thisAgreement shall not affect the validity or enforceability of any otherprovision of this Agreement, which shall remain in full force and effect.
     9. Counterparts. This Agreement may be executed in one or morecounterparts, each of which shall be deemed to be an original but all of whichtogether shall constitute one and the same instrument.
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     10. Agreement Not an Employment Contract. This Agreement shall not bedeemed to constitute an employment contract between the Company and the KeyEmployee, and nothing herein shall be deemed to give the Key Employee the rightto continue in the employ of the Company or interfere with the right of theCompany to discharge the Key Employee at any time.
     11. Legal Fees and Expenses. The Company shall pay all legal fees,expenses and damages which the Key Employee may incur as a result of the KeyEmployee’s instituting legal action to enforce the rights hereunder, or in theevent the Company contests the validity, enforceability or the Key Employee’sinterpretation of, or determinations under, this Agreement. If the Key Employeeis the prevailing party or recovers any damages in such action, the keyEmployee shall be entitled to receive in addition thereto pre-judgment andpost-judgment interest on the amount of such damages.
     12. Amendment and Termination. This Agreement may be amended orterminated at any time by the Company, or by resolution of the Board or acommittee thereof, provided that without the written consent of the KeyEmployee, no termination or amendment reducing the severance benefits providedhereunder shall be effective prior to the expiration of the applicable one-yearterm of this Agreement described in Section 3 during which the Board resolutionis adopted. Further, no amendment or termination shall be effective during aone-year term commencing on the date of a Potential Change of Control of theCompany without the consent of the Key Employee or the two-year term of thisAgreement commencing on the date of a Change of Control of the Company withoutthe consent of the Key Employee. No amendment or termination shall affect anyrights or benefits that the Key Employee is entitled to at the time of suchamendment or termination.
     13. Funding of Benefits. The benefits payable to the Key Employeehereunder shall not be funded in any manner and shall be paid by the Companyout of its general assets, which assets are subject to the claims of theCompany’s creditors.
     14. Withholding. There shall be deducted from the payment of any benefitdue under this Agreement (a) the amount of any uncontested indebtedness,obligation, or liability which the Key Employee has acknowledged in writing asowing to the Company or any subsidiary of the Company, which has been agreed toby the Key Employee, and (b) the amount of any tax required by any governmentalauthority to be withheld and paid over by the Company to such governmentalauthority for the account of the Key Employee.
     15. Assignment. Unless required by court order, the Key Employee shallnot have any rights to sell, assign, transfer, encumber, or otherwise conveythe right to receive the payment of any benefit due hereunder, which paymentand the rights thereto are expressly declared to be nonassignable andnontransferable. Any attempt to do so shall be null and void and of no effect.
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     IN WITNESS WHEREOF, the parties have executed this Agreement as of thedate first above written.   ZALE CORPORATION      By:   Name:   Title:         KEY EMPLOYEE   By:   Name:    Title:  
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