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THIRD AMENDMENT TO  CREDIT AGREEMENT
 th
          WITNESSETH
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1.
    
    Definitions: All capitalized terms used herein and not otherwise defined shall
have the same meaning herein as in the Credit Agreement.2.
    
    Amendments to Article I. The provisions of Article 1 of the Credit Agreement
are hereby amended as follows:
 a.
    
    The definition of Fleet is hereby deleted in its entirety and the following
substituted in its stead:Fleet means Bank of America, N.A. and its
successors.b.
    
    The definition of FRF is hereby deleted in its entirety and the following substituted
in its stead:FRF means Fleet Retail Group, LLC and its successors.c.
    
    The definition of Obligations is hereby deleted in its entirety and substituting the
following in its stead:Obligations means (a) Loan Agreement Obligations, ((b) all obligations arising under the Zale
Canada Guaranty, (c) the payment and performance of any transaction with FRF as Collateral Agent,
or Fleet as Administrative Agent, or any of their respective Affiliates, which arises out of any
cash management, depository, investment, letter of credit, interest rate protection or other
Hedging Agreement, or other banking or financial services provided by any such Person, in each
case, in connection with this Agreement or the other Loan Documents, as each may be amended from
time to time and (d) the payment and performance of any transaction with any Lender, or any of
their respective Affiliates, which arises out of any interest rate protection or other Hedging
Agreement.d.
    
    The definition of Reserves is hereby amended by adding the words the Zale Canada
Guaranty Reserve immediately after the words Consignment A/R Reserve in the second line thereof.e.
    
    The following new definitions are hereby added to Article I of the Credit Agreement in
appropriate alphabetical order:
 CDN$ means Canadian Dollars.Zale Canada Credit Agreement means that certain Credit Agreement to be dated on or about
January 17, 2006 by and between Zale Canada Co. and Bank of America, N.A. (acting through its
Canada branch), as agent, and the lenders party thereto (as amended and in effect from time to
time).
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Zale Canada Guaranty means that certain Guaranty to be dated on or about January
17, 2006, by and among the Borrowers in favor of Bank of America, N.A. (acting through its Canada
branch) as administrative agent under the Zale Canada Credit Agreement and the lenders party to
such agreement, to secure the obligations of Zale Canada Co. now existing or hereafter arising
pursuant to the Zale Canada Credit Agreement.Zale Canada Guaranty Reserve means, at any time of calculation, an amount determined by
the Administrative Agent, in its reasonable discretion from time to time, but in no event to exceed
the outstanding obligations of Zale Canada under the Zale Canada Credit Agreement (including
principal, interest, fees, indemnities, and expense reimbursements).
 3.
    
    Amendments to Article II. The provisions of Article II of the Credit Agreement
are hereby amended as follows:
 a.
    
    The provisions of Section 2.2(b) of the Credit Agreement are hereby amended by adding
the words provided that the foregoing shall not apply to the imposition of, or change in the
amount of, the Zale Canada Guaranty Reserve at the end of the first sentence thereof.b.
    
    The provisions of Section 2.22(a) of the Credit Agreement are hereby amended as follows:
 i.
    
    by adding the words (other than on account of the Zale Canada
Guaranty) in clause seventh immediately after the word Obligations.ii.
    
    by adding and eighth, if there exists an Event of Default under and as such
term is defined in the Zale Canada Credit Agreement, to pay all other Obligations on account of the
Zale Canada Guaranty that are then outstanding and then due and payable.iii.
    
    by deleting the word seventh in the second sentence thereof and substituting eighth
in its stead.
 4.
    
    Amendments to Article V. The provisions of Article V of the Credit Agreement are
hereby amended as follows:
 a.
    
    The introductory provisions of Article V to the Credit Agreement are hereby deleted in
their entirety and the following substituted in their stead:Until the Commitments have expired or been terminated and the Obligations shall have been paid in
full and all Letters of Credit shall have expired or terminated and all L/C Disbursements shall
have been reimbursed, each Borrower covenants and agrees with the Agents and the Lenders that:
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b.
    
    The provisions of Section 5.9(b) of the Credit Agreement are hereby amended as follows:
 i.
    
    by deleting the number $75,000,000 in the last line thereof and substituting the
number $250,000,000 in its stead.ii.
    
    by adding and (x) during the period January 1 through October 31 and
December 16 through December 31 of each year, Excess Availability is at all times greater than
$150,000,000, or (y) during the period November 1 through December 15 of each year, Excess
Availability is at all times greater than $100,000,000 at the end of the last sentence thereof.
 5.
    
    Amendments to Article VI. The provisions of Article VI of the Credit
Agreement are hereby amended as follows:
 a.
    
    The introductory provisions of Article VI to the Credit Agreement are hereby deleted in
their entirety and the following substituted in their stead:Until the Commitments have expired or been terminated and the Obligations shall have been paid in
full and all Letters of Credit shall have expired or terminated and all L/C Disbursements shall
have been reimbursed, each Borrower covenants and agrees with the Agents and the Lenders that:b.
    
    The provisions of Section 6.1(e) of the Credit Agreement are hereby deleted in their
entirety and the following substituted in their stead:

(e) (i) The Zale Canada Guaranty and (ii) other Guaranties of other Indebtedness of Zale Canada in
an aggregate amount with respect to clause (ii) not to exceed $12,000,000.c.
    
    The provisions of Section 6.4(k) of the Credit Agreement are hereby deleted in their
entirety and the following inserted in their stead:(k)investments consisting of (i) the Zale Canada Guaranty, (ii) Indebtedness permitted by Sections
6.1(c), (d), (e), (i), and (j); (iii) other guaranties of Indebtedness or other obligations
permitted by Sections 6.1(e), (f), and (g) in effect on the date hereof; and (iv) other loans,
advances, guarantees or other investments in Zale Canada in effect on the date hereof, which, when
combined with Guaranties permitted by Section 6.1(e)(ii), do not exceed $12,000,000 in the
aggregate principal amount;d.
    
    The provisions of Section 6.4 of the Credit Agreement are amended by deleting the word
and at the end of Section 6.4(o), by re-lettering Section 6.4(p) as Section 6.4(q) and adding the
following immediately after said Section 6.4(o):
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(p) Guarantees of obligations of a Subsidiary other than Zale Canada Co. in an amount not to
exceed $20,000,000 in the aggregate for all such Guarantees at any time outstanding;
 6.
    
    Amendments to Article VII. The provisions of Article VII of the Credit Agreement
are hereby amended as follows:
 a.
    
    By adding the following at the end of Section 7.1 (p) of the Credit Agreement after the
words Closing Date:(it being understood that for purposes hereof, the Peoples II carts operated by the Borrower shall
not be deemed store locations);b.
    
    By adding the following subsection (s) to Section 7.1 of the Credit Agreement:(s) the Borrowers shall fail to pay any amount under the Zale Canada Guaranty within five (5)
Business Days of the date when the administrative agent under the Zale Canada Credit Agreement
makes demand for payment therefor;c.
    
    The provisions of Section 7.4 are hereby amended as follows:
 i.
    
    By adding the words (other than the Obligations of the Borrowers under the Zale Canada
Guaranty) after the word Obligations in Section 7.4(c) and by deleting the word and at the end
of Section 7.4(c).ii.
    
    By deleting the remainder of Section 7.4 in its entirety and substituting the following
in its stead:(d) Fourth, to the Obligations of the Borrowers under the Zale Canada Guaranty;(e) Fifth, upon payment and satisfaction in full or other provisions for payment in full
satisfactory to the Lenders and the Administrative Agent and the Collateral Agent of all of the
Obligations, to the payment of any obligations required to be paid pursuant to §9-608(a)(l)(C) or
9-615(a)(3) of the Uniform Commercial Code of the State of New York; and(f) Sixth, the excess, if any, shall be returned to the Borrowers or to such other Persons
as are entitled thereto.
 7.
    
    Conditions to Effectiveness. This Third Amendment shall not be effective until
each of the following conditions precedent have been fulfilled to the satisfaction of the
Administrative Agent:
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a.
    
    This Third Amendment shall have been duly executed and delivered by the Borrowers, the
Agents and the Lenders. The Administrative Agent shall have received a fully executed copy hereof
and of each other document required hereunder.b.
    
    All action on the part of the Borrowers necessary for the valid execution, delivery and
performance by the Borrowers of this Third Amendment shall have been duly and effectively taken.
The Administrative Agent shall have received from the Borrowers true copies of their respective
certificate of the resolutions authorizing the transactions described herein, each certified by
their secretary or other appropriate officer to be true and complete.c.
    
    The Borrowers or Zale Canada shall have reimbursed the Administrative Agent for all
expenses incurred in connection herewith, including, without limitation, reasonable attorneys
fees.d.
    
    The Borrowers shall have executed and delivered the Zale Canada Guaranty.e.
    
    No Default or Event of Default shall have occurred and be continuing.f.
    
    The Borrowers shall have provided such additional instruments and documents to the
Administrative Agent as the Administrative Agent and their counsel may have reasonably requested.
 8.
    
    Miscellaneous.
 a.
    
    Except as provided herein, all terms and conditions of the Credit Agreement and the
other Loan Documents remain in full force and effect. The Borrowers each hereby ratify, confirm,
and reaffirm all of the representations, warranties and covenants therein contained. Without
limiting the generality of the foregoing, each Borrower hereby acknowledges, confirms and agrees
that all Collateral shall continue to secure the Obligations as modified and amended pursuant to
this Third Amendment (including, without limitation, the Zale Canada Guaranty) and any future
modifications, amendments, substitutions or renewals thereof.b.
    
    The Borrowers or Zale Canada shall pay all costs and expenses incurred by the
Administrative Agent in connection with this Third Amendment, including, without limitation, all
reasonable attorneys fees.c.
    
    This Third Amendment may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered, each shall be an original, and
all of which together shall constitute one instrument. Delivery of an executed counterpart of a
signature page hereto by telecopy or by electronic email in .pdf format shall be effective as
delivery of a manually executed counterpart hereof.
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d.
    
    This Third Amendment expresses the entire understanding of the parties with
respect to the matters set forth herein and supersedes all prior discussions or negotiations
hereon. Any determination that any provision of this Third Amendment or any application hereof is
invalid, illegal or unenforceable in any respect and in any instance shall not effect the validity,
legality, or enforceability of such provision in any other instance, or the validity, legality or
enforceability of any other provisions of this Third Amendment.
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ZALE DELAWARE, INC.By:
    
    /s/ David SternblitzDavid SternblitzVice President and TreasurerZALE CORPORATIONBy:
    
    /s/ David SternblitzDavid SternblitzVice President and TreasurerDDCC, INC.By:
    
    /s/ David SternblitzDavid SternblitzVice President and TreasurerTXDC, L.P.By:
    
    Zale Delaware, Inc., Its General PartnerBy:
    
    /s/ David SternblitzDavid SternblitzVice President and Treasurer
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BANK OF AMERICA, N.A., as Administrative Agent and Issuing BankBy:
    
    /s/ Sally A. SheehanName:
    
    Sally A. SheehanTitle:
    
    Managing Director
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FLEET RETAIL GROUP, LLC, as Collateral Agent and LenderBy:
    
    /s/ Sally A. SheehanName:
    
    Sally A. SheehanTitle:
    
    Managing Director
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CONGRESS FINANCIAL CORPORATION (SOUTHWEST)By:
    
    /s/ Paul TruaxName:
    
    Paul TruaxTitle:
    
    Vice President
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JPMORGAN CHASE BANK, N.A.By:
    
    /s/ Lavea EisenbergName:
    
    Lavea EisenbergTitle:
    
    Vice President
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GENERAL ELECTRIC CAPITAL CORPORATIONBy:
    
    /s/ Brian P. SchwinnName:
    
    Brian P. SchwinnTitle:
    
    Duly Authorized Signatory
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ABN/AMRO BANK, N.V.By:
    
    /s/
Ronald C. Spurfa and Frederick JenningsName:
Ronald C. Spurfa and Frederick JenningsTitle:   Vice President
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THE CIT GROUP/BUSINESS CREDIT, INC.By:
    
    /s/ Manuel BorgesName: Manuel BorgesTitle:   Vice President
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NATIONAL CITY BUSINESS CREDIT, INC.By:
    
    /s/ Joe KwasnyName: Joe KwasnyTitle:   Director
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WELLS FARGO FOOTHILL, LLCBy:
    
    /s/ David HillName: David HillTitle:   Vice President
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KEYBANK NATIONAL ASSOCIATIONBy:
    
    /s/ Alex StrazzellaName: Alex StrazzellaTitle:   S V P
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THE BANK OF NEW YORKBy:
    
    /s/ Scott DeTragliaName: Scott DeTragliaTitle:   Assistant Vice President
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HIBERNIA NATIONAL BANKBy:
    
    /s/ Shannan PrattName: Shannan PrattTitle:   Vice President
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SOVEREIGN BANKBy:
    
    /s/ Judith KellyName: Judith KellyTitle:   S V P
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ROYAL BANK OF CANADABy:
    
    /s/ Dustin CravenName: Dustin CravenTitle:   Attorney-In-Fact
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ROYAL BANK OF SCOTLANDBy:
    
    /s/ Michaela V. GalluzzoName: Michaela V. GalluzzoTitle:   Vice President
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COMERICA BANKBy:
    
    /s/ Jeff P. GeisbauerName: Jeff P. GeisbauerTitle:   Assistant Vice President
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UBS AG, STAMFORD BRANCHBy:
Name:
    
    /s/ Joselin Fernandes

Joselin FernandesTitle:
    
    Associate DirectorBanking Products
Services, USBy:
Name:
    
    /s/ Irja R.Otsa

Irja R.OtsaTitle:
    
    Associate DirectorBanking Products
Services, US
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ACKNOWLEDGEMENT
  BANK OF AMERICA, N.A.(acting through its
Canada branch)By:
    
    /s/ NELSON LAMName:
    
    NELSON LAMTitle:
    
    VICE PRESIDENT
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