##### 



Exhibit 10.12

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (Agreement), dated as of August 1, 2003, is by
and between Zale Delaware, Inc. (the Company), and Mark R. Lenz (the
Executive).

WHEREAS, the Executive and the Company desire to enter into an employment
agreement which sets forth the terms and conditions of the Executives
employment with the Company.

NOW, THEREFORE, in consideration of the foregoing recital, of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

1.     Employment. The Executive agrees to continue in the employment of the
Company, and the Company agrees to employ the Executive, on the terms and
conditions set forth in this Agreement. The Executive agrees during the Term
(as hereinafter defined) to devote his full time efforts, skills and abilities
to the performance of his duties as stated in this Agreement and to the
furtherance of the Companys business. As consideration for this Agreement and
specifically in consideration for the promises described in Section 8, the
Company promises to provide the Executive with confidential and proprietary
information and trade secrets, the receipt and sufficiency of which the
Executive acknowledges, including, without limitation, Trade Secrets (as
defined below) belonging to the Company for use in the performance of the
Executives duties for the Company. The Executives job title will be Group
Senior Vice President and Chief Financial Officer of the Company and his duties
will be those designated from time to time by the Chief Executive Officer
(CEO) and/or Board of Directors of the Company (Board). The Executive
further agrees to serve, without additional compensation, as an officer or
director, or both, of any subsidiary, division or affiliate of the Company or
any other entity in which the Company holds an equity interest, provided,
however, that (a) the Company shall indemnify the Executive from liabilities in
connection with serving in any such position to the same extent as his
indemnification rights pursuant to the Companys Certificate of Incorporation,
Bylaws and applicable Delaware law, and (b) such other position shall not
materially detract from the responsibilities of the Executive pursuant to this
Section 1 or his ability to perform such responsibilities.

2.     Compensation.

(a) Base Salary. During the term of the Executives employment with the
Company pursuant to this Agreement, the Company shall pay to the Executive as
compensation for his services an annual base salary of not less than $250,000
payable bi-weekly (Base Salary). The Executives Base Salary will be payable
in arrears in accordance with the Companys normal payroll procedures and will
be reviewed annually and subject to adjustment at the discretion of the CEO
and/or the Board or an authorized committee or representative thereof.

(b) Incentive Bonus. The Executives incentive compensation program
during the term of his employment under this Agreement shall be determined
under the Companys Executive Bonus Program, established by the Board in its discretion. The Executive is eligible to receive up





---



##### 



to 65% of his Base Salary in accordance
with the terms and conditions of the Executive Bonus Program.

(c) Vacation. The Executive shall be entitled to a reasonable vacation of
three (3) paid weeks each fiscal year during the term of his employment under
this Agreement in accordance with the Companys vacation policy. Any
additional vacation shall be approved in the sole discretion of the Executives
supervisor.

(d) Executive Perquisites. The Executive shall be entitled during the
term of his employment under this Agreement to receive such executive
perquisites and fringe and other benefits as are provided to similarly situated
executives and their families under any of the Companys plans and/or programs
in effect from time to time and such other benefits as are customarily
available to executives of the Company and their families.

(e) Tax Withholding. The Company has the right to deduct from any
compensation payable to the Executive under this Agreement social security
(FICA) taxes and all federal, state, municipal or other such taxes or charges
as may now be in effect or that may hereafter be enacted or required.

3.     Term. Unless sooner terminated pursuant to Section 4 of this
Agreement, the term of the Executives employment under this Agreement shall
commence as of the date hereof and shall continue for three (3) years
thereafter up to and including July 31, 2006 (the Term). Following the
expiration of the Term, the Executives employment shall continue at-will
unless a new employment agreement is negotiated and executed.

4.     Early Termination. The Term may be terminated prior to the expiration
date specified in Section 3 under the following circumstances:

(a) Death. The Executives employment under this
Agreement shall terminate upon the death of the Executive.

(b) Termination for Cause. The Company may terminate the Executives
employment at any time for Cause (as hereinafter defined) by delivering a
written termination notice to the Executive. For purposes of this Agreement,
Cause shall mean any of the following:



| |                                                                                 
| | --------------------------------------------------------------------------------
| | (i) the Executive is convicted of a felony or a crime involving
moral turpitude;



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | (ii) the Executive commits an act constituting fraud, deceit or
material misrepresentation with respect to the Company;



| |                                                                
| | ---------------------------------------------------------------
| | (iii) the Executive embezzles funds or assets from the Company;



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) the Executives use of any alcoholic, controlled or illegal
substance or drug at work or otherwise such that, in the Companys sole
discretion, the Executives job performance is impaired;

-2-



---



##### 





| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v) in the Companys sole discretion, the Executive commits any
negligent or willful act or omission in the performance of his duties or
the exercise of his responsibilities; or



| |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vi) in the Companys sole discretion, the Executive commits any
negligent or willful act or omission that causes damage (by reason,
without limitation, of financial exposure or loss, damage to reputation
or goodwill, or exposure to civil or criminal penalties or other
prosecutorial action by any governmental authority) to the Company or any
parent or subsidiary corporation thereof.



| | or
| | --

(c) Termination Without Cause. The Company may also terminate the
Executives employment at any time for any reason other than for Cause by
delivering a written termination notice to the Executive.

(d) Termination by the Executive. The Executive may terminate his
employment at any time by delivering a written termination notice to the
Company and such termination shall be deemed a Termination Reason for any of
the following reasons:



| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) a material reduction by the Company in the Executives Base
Salary unless such reduction is the result of (A) a business judgment
made by the Company in its sole discretion, or (B) the Executives
failure to meet pre-established and objective performance criteria;



| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) Companys principal executive offices shall be moved to a
location outside the Dallas/Fort Worth, Texas Metroplex area or the
Executive is required to be based anywhere other than the Companys
principal executive offices; and



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) the assignment to the Executive by the Company of duties
materially inconsistent with, or the material reduction of the powers and
functions associated with, the Executives position, duties,
responsibilities and status with the Company or a material adverse change
in the Executives titles or offices, unless such action is the result of
the Executives failure to meet preestablished and objective performance
criteria, or in lieu of termination by the Company of the Executives
employment for the Executives Disability pursuant to Section 4(e) below.

(e) Termination Following Disability. In the event that in the Companys
sole discretion, the Executive becomes mentally or physically impaired or
disabled and is unable to perform his duties and responsibilities hereunder for
a period of at least one hundred twenty (120) days in the aggregate during any
one hundred fifty (150) consecutive day period (a Disability Event), the
Company may terminate the Executives employment under this Agreement by
delivering a written termination notice to the Executive.

(f) Payments/Deductions. Following any expiration or termination of the
Executives employment under this Agreement, and in addition to any amounts
owed pursuant to Section 5 hereof, the Company shall pay to the Executive all
amounts earned by the Executive

-3-



---



##### 



hereunder up to the date of such expiration or termination. The Executive
agrees that any advances to the Executive by the Company outstanding at the
time of the expiration or termination of the Executives employment under this
Agreement may be deducted from his wages, including his final paycheck and/or
any severance owed to Executive.

5.     Rights of Executive Upon Termination. Subject to the Executives
adherence to the terms of this Agreement, including but not limited to the
non-competition, no-hire/non-solicitation and non-disclosure provisions set
forth below, the Executive shall be entitled to receive the following benefits
in the event his employment is terminated pursuant to Section 4 above prior to
the expiration of the Term specified in Section 3 above.

(a) Death. In the event that the Executives employment is terminated
upon the occurrence of his death as provided in Section 4(a), the Company shall
continue to pay, in accordance with its normal payroll procedures, the Base
Salary to the Executives estate for a period of twelve (12) months after the
date of the Executives death.

(b) Termination for Cause. In the event that the Executives employment
is terminated by the Company for Cause as provided in Section 4(b) or by the
Executive without a Termination Reason as provided in Section 4(d), the
Executive shall not thereafter be entitled to any further compensation from the
Company.

(c) Termination without Cause or by the Executive. In the event the
Company terminates the Executives employment without Cause as provided in
Section 4(c) or the Executive terminates his employment for a Termination
Reason as provided in Sections 4(d)(i), 4(d)(ii) or 4(d)(iii), then the
Executive shall be entitled to the following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Severance. The Company shall continue to pay (in accordance
with its normal payroll procedures) the Base Salary to the Executive (or
the Executives estate if the Executive dies after termination of
employment) for the greater of (i) the remainder of the Term or (ii) the
period for which the Executive would be entitled to severance under the
Companys severance policy in existence at the time of the Executives
termination (Severance Period).



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) Benefits. During the first twelve (12) months of the Severance
Period or if the Severance Period is less than twelve (12) months, until
the end of the Severance Period, the Executive shall continue to receive
the fringe benefits provided under Sections 2(b) and 2(d) hereof,
provided that the continued participation of the Executive under any
benefit plan including, without limitation, group healthcare, dental and
life insurance is possible under the general terms and provisions of such
plans. If the Executives participation in any such plan is barred, the
Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have
been entitled to receive under such plan or, alternatively at the option
of the Company, reimburse the Executive for the reasonable actual costs
of purchasing in the marketplace substantially similar benefits;
provided, however, that in either case the Executive shall pay to the
Company, or provide a credit against the Companys reimbursement
obligation for, the amount equal to the premiums, or portion thereof,
that the Executive was required to pay to

-4-



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | maintain such benefits prior to
the date of termination of employment. Notwithstanding anything to the
contrary contained herein, the Executive shall be entitled to participate
in the Companys Executive Car Program in effect for the Executive
immediately prior to the Severance Period only until the earlier of (x)
the second anniversary of the Executives then current car lease, or (y)
the end of the Severance Period. The Executive shall return any Company
vehicle provided to him under the Executive Car Program to the Company or
its designee upon the expiration of his Executive Car Program benefits
as described in the foregoing sentence.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) Offset. The payments which would have been due and payable in
accordance with Section 5(c)(i) hereof shall be reduced by an amount
equal to any amounts that the Executive receives in connection with any
other employment during the Severance Period. Any fringe benefits
received by or available to the Executive in connection with any other
employment that are reasonably comparable, but not necessarily as
financially or otherwise beneficial to the Executive as the fringe
benefits then being provided by the Company pursuant to Section 5(c)(ii)
hereof, shall be deemed to be the equivalent thereof and shall terminate
the Companys responsibility to continue providing the fringe benefits
then being provided by the Company pursuant to Section 5(c)(ii) hereof.

(d) Termination Following Disability. In the event that the Executives
employment is terminated due to a Disability Event as provided in Section 4(e),
the Executive shall be entitled to continue to receive his salary and benefits
(subject to the conditions regarding such benefits specified in Section
5(c)(ii) and 5(c)(iii) above) under Section 2 of this Agreement for a period of
twelve (12) months after the date of such termination.

(e) Complete Compensation. Except as specifically provided for in this
Section 5 and Section 4(f) above, the Executive shall be entitled to no
additional salary, benefits or other compensation following the termination of
his employment.

6.     Effect of Change of Control.

(a) If within two (2) years following a Change of Control (as
hereinafter defined), the Executive terminates his employment with the Company
for Good Reason (as hereinafter defined) or the Company terminates the
Executives employment for any reason other than Cause or disability, the
Company shall pay to the Executive:



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | (i) an amount equal to three (3) times the Executives Base Salary
as of the date of termination;



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) an amount equal to three (3) times the average annual cash
bonus paid to the Executive for the two (2) fiscal years immediately
preceding the date of termination;



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) all benefits under the Companys various benefit plans,
including group healthcare, dental, life and the Companys Executive Car
Program for the period equal to thirty-six (36) months from the date of
termination, provided that the continued participation of the Executive is possible under the general terms
and provisions of such plans. If the

-5-



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Executives participation in any
such plan is barred, the Company shall arrange to provide the Executive
with benefits substantially similar to those which the Executive would
otherwise have been entitled to receive under such plan or, alternatively
at the option of the Company, reimburse the Executive for the reasonable
actual costs of purchasing in the marketplace substantially similar
benefits; provided, however, that in either case the Executive shall pay
to the Company, or provide a credit against the Companys reimbursement
obligation for, the amount equal to the premiums, or portion thereof,
that the Executive was required to pay to maintain such benefits prior to
the date of termination of employment. Further, any insurance or other
benefits and benefits coverage provided pursuant hereto shall be limited
and reduced to the extent such coverage or benefits are otherwise
provided by or available from any other employer of the Executive; and



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) a lump sum payment equal to the actuarial equivalent
(determined by the Company in good faith with assistance of its
accountants or actuaries), of the benefit which would have accrued under
the Zale Delaware, Inc. Supplemental Executive Retirement Plan(SERP)
if:



| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) the Executive remained a participant in the SERP for the
three (3) year period commencing on the first day of the SERPs
plan year (Plan Year) in which the Executives employment with
the Company terminated (Measurement Period);



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) during each Plan Year in the Measurement Period the
Executive earned benefit points equal to the highest number of the
benefit points earned by such Executive in a Plan Year during the
three (3) year period ending on the last day of the Plan Year
immediately preceding the Plan Year in which his employment with
the Company terminated; and



| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) the Executives final average pay during the Measurement
Period is the greater of his monthly Base Salary on the date of (a)
a Potential Change of Control, (b) the Change of Control or (c) the
date of his termination of employment.

(b) Change of Control shall mean the date as of which:



| |                                
| | -------------------------------
| | (i) there shall be consummated:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant
to which shares of the Companys common stock would be converted
into cash, securities or other property, other than a merger of the
Company in which the holders of the Companys common stock
immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately
after the merger; or



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company;

-6-



---



##### 





| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | (ii) the stockholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company;



| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (Exchange
Act)), shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 30% of the Companys outstanding common
stock; or



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) during any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the entire board of directors
of the Company shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the
Companys stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors
at the beginning of the period.

(c) Good Reason shall mean any of the following actions taken by the
Company without the Executives written consent after a Change of Control:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) the assignment to the Executive by the Company of duties
materially inconsistent with, or the material reduction of the powers and
functions associated with, the Executives position, duties,
responsibilities and status with the Company immediately prior to a
Change of Control or Potential Change of Control (as defined below), or a
material adverse change in the Executives titles or offices as in effect
immediately prior to a Change of Control or Potential Change of Control,
or any removal of the Executive from or any failure to re-elect the
Executive to any of such positions, except in connection with the
termination of his employment (A) by the Company for Disability or Cause
or as a result of the Executives death or (B) by the Executive other
than for the reasons set forth in this section (6)(c)(i)-(vii);



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) a reduction by the Company in the Executives Base Salary as in
effect on the date of a Change of Control or Potential Change of Control;



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | (iii) the Companys principal executive offices shall be moved to a
location outside the Dallas/Fort Worth, Texas Metroplex area;



| |                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) the Company shall require the Executive to be based anywhere
other than at the Companys principal executive offices or the location
where the Executive is based on the date of a Change of Control or
Potential Change of Control, or if the Executive agrees to such
relocation, the Company fails to reimburse the Executive for moving and
all other expenses incurred with such move;



| |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v) the Company shall fail to continue in effect any
Company-sponsored plan that is in effect on the date of a Change of
Control or Potential Change of Control,
that provides (A) incentive or bonus compensation, (B) reimbursement
for reasonable expenses incurred by the Executive in connection with the
performance of duties with the Company, and (C) pension benefits such as
a Code Section 401(k) plan;

-7-



---



##### 





| |                                                                                
| | -------------------------------------------------------------------------------
| | (vi) any material breach by the Company of any provision of this
Agreement; and



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vii) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company effected in
accordance with the provisions of this Section 6.

(d) Potential Change of Control shall mean the date as of which:



| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) the Company enters into an agreement the consummation of which,
or the approval by shareholders of which, would constitute a Change of
Control;



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | (ii) proxies for the election of Directors of the Company are
solicited by anyone other than the Company;



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) any person (including, but not limited to, any individual,
partnership, joint venture, corporation, association or trust) publicly
announces an intention to take or to consider taking actions which, if
consummated, would constitute a Change of Control; or



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board and the Board adopts a resolution to the effect
that a Potential Change of Control has occurred.

(e) In the event that:



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | (i) the Executive would otherwise be entitled to the compensation
and benefits described in Section 6(a) hereof
(Compensation Payments);
and



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) the Company determines, based upon the advice of tax counsel
selected by the Companys independent auditors and acceptable to the
Executive, that, as a result of such Compensation Payments and any other
benefits or payments required to be taken into account under Code Section
280G(b)(2)(Parachute Payments), any of such Parachute Payments would
be reportable by the Company as excess parachute payments, such
Compensation Payments shall be reduced to the extent necessary to cause
the Executives Parachute Payments to equal 2.99 times the base amount
as defined in Code Section 280G(b)(3) with respect to such Executive.
However, such reduction in the Compensation Payments shall be made only
if, in the opinion of the Company, based upon the advice of such tax
counsel, it would result in a larger Parachute Payment to the Executive
than payment of the unreduced Parachute Payments after deduction of tax
imposed on and payable by the Executive under Section 4999 of the Code
(Excise Tax). The value of any non-cash benefits or any deferred
payment or benefit for purposes of this paragraph shall be determined by
the Companys independent auditors.

(f) Unless the Company determines that any Parachute Payments made
hereunder must be reported as excess parachute payments in accordance with
Section 6(e) above, neither party shall file any return taking the position
that the payment of such benefits constitutes an excess parachute payment
within the meaning of Section 280G(b)(1) of the Code.

-8-



---



##### 



(g) The parties hereto agree that the payments provided under Section
6(a), as may be adjusted pursuant to Section 6(e), are reasonable compensation
in light of the Executives services rendered to the Company.

7.     Complete Release. The Executive acknowledges and agrees that he will
not receive any of the payments described in Sections 5 and 6 above unless the
Executive signs and returns to the Company a full and complete release of any
and all claims that the Executive or his estate, heirs or assigns may have
against the Company, its subsidiaries and affiliates and its and their
officers, directors, employees and agents in a form acceptable to and provided
by the Company at or around the time of the Executives termination.

8.     Non-Competition. As a material inducement for the Companys promise to
provide the trade secrets and confidential and proprietary information
described in Section 10 below, the Executive agrees that during the Term and
for a period of three (3) years from the date of termination or cessation of
the Executives employment with the Company for any reason whatsoever, he will
not, directly or indirectly, compete with the Company by providing services to
any other person, partnership, association, corporation, or other entity that
is in a Competing Business. As used herein, a Competing Business is any
business that engages in the specialty retail sale of jewelry in the United
States and/or Puerto Rico, and the Executives employment function or
affiliation with the Competing Business is directly or indirectly related to
such business of jewelry. The restrictions contained in this Section 8 shall be
tolled on a day-for-day basis for each day during which the Executive
participates in any activity in violation of such restrictions. The parties
agree that the above restrictions on competition are completely severable and
independent agreements supported by good and valuable consideration and, as
such, shall survive the termination of this Agreement for whatever reason. The
parties further agree that any invalidity or unenforceability of any one or
more of such restrictions on competition shall not render invalid or
unenforceable any remaining restrictions on competition. Additionally, should
a court of competent jurisdiction determine that the scope of any provision of
this Section 8 is too broad to be enforced as written, the parties intend that
the court reform the provision to such narrower scope as it determines to be
reasonable and enforceable.

9.     No Hire/Non-Solicitation of Employees. During the Term and for a
period of three (3) years after the termination or cessation of his employment
with the Company for any reason whatsoever, the Executive shall not, on his own
behalf or on behalf of any other person, partnership, association, corporation,
or other entity, (a) directly, indirectly, or through a third party hire or
cause to be hired; (b) directly, indirectly or through a third party solicit;
or (c) in any manner attempt to influence or induce any employee of the Company
or its subsidiaries or affiliates to leave the employment of the Company or its
subsidiaries or affiliates, nor shall he use or disclose to any person,
partnership, association, corporation or other entity any information obtained
concerning the names and addresses of the Companys employees. The
restrictions contained in this Section 9 shall be tolled on a day-for-day basis
for each day during which the
Executive participates in any activity in violation of such restrictions.
The parties agree that the above restrictions on hiring and solicitation are
completely severable and independent agreements supported by good and valuable
consideration and, as such, shall survive the termination of this Agreement for
whatever reason. The parties further agree that any invalidity or
unenforceability of any one or more of such restrictions on

-9-



---



##### 



hiring and
solicitation shall not render invalid or unenforceable any remaining
restrictions on hiring and solicitation. Additionally, should a court of
competent jurisdiction determine that the scope of any provision of this
Section 9 is too broad to be enforced as written, the parties intend that the
court reform the provision to such narrower scope as it determines to be
reasonable and enforceable.

10.     Nondisclosure of Trade Secrets. The Company promises to disclose to
the Executive and the Executive acknowledges that in and as a result of his
employment by the Company, he will receive, make use of, acquire, have access
to and/or become familiar with various trade secrets and proprietary and
confidential information of the Company, its subsidiaries and affiliates,
including, but not limited to, processes, computer programs, compilations of
information, records, financial information, sales reports, sales procedures,
customer requirements, pricing techniques, customer lists, methods of doing
business, identities, locations, performance and compensation levels of
employees and other confidential information (collectively,
Trade Secrets)
which are owned by the Company, its subsidiaries and/or affiliates and
regularly used in the operation of its business, and as to which the Company,
its subsidiaries and/or affiliates take precautions to prevent dissemination to
persons other than certain directors, officers and employees. The Executive
acknowledges and agrees that the Trade Secrets:

(a) are secret and not known in the industry;

(b) give the Company or its subsidiaries or affiliates an advantage over
competitors who do not know or use the Trade Secrets;

(c) 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

(d) are valuable, special and unique assets of the Company or its
subsidiaries or affiliates, the disclosure of which could cause substantial
injury and loss of profits and goodwill to the Company or its subsidiaries or
affiliates.

The Executive promises not to use in any way or disclose any of the Trade
Secrets and confidential and proprietary information, directly or indirectly,
either during or after the Term, except as required in the course of his
employment under this Agreement, if 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 Executive. All files,
records, documents, information, data and similar items relating to the
business of the Company, whether prepared by the Executive or otherwise coming
into his possession, will remain the exclusive property of the Company and may
not be removed from the premises of the Company under any circumstances without
the prior written consent of the Company (except in the ordinary course of
business during the Executives period of active employment under this
Agreement), and in any event must be promptly delivered to the Company upon
termination of the Executives
employment with the Company. The Executive agrees that 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,
whether received during or after the term of the Executives employment with
the Company, the Executive shall timely notify and promptly hand deliver a copy
of the subpoena, process or other request to the Company. For this purpose,
the Executive irrevocably nominates and appoints the

-10-



---



##### 



Company (including any
attorney retained by the Company), as his true and lawful attorney-in-fact, to
act in the Executives name, place and stead to perform any act that the
Executive might perform to defend and protect against any disclosure of any
Trade Secrets.

The parties agree that the above restrictions on confidentiality and
disclosure are completely severable and independent agreements supported by
good and valuable consideration and, as such, shall survive the termination of
this Agreement for whatever reason. The parties further agree that any
invalidity or unenforceability of any one or more of such restrictions on
confidentiality and disclosure shall not render invalid or unenforceable any
remaining restrictions on confidentiality and disclosure. Additionally, should
a court of competent jurisdiction determine that the scope of any provision of
this Section 10 is too broad to be enforced as written, the parties intend that
the court reform the provision to such narrower scope as it determines to be
reasonable and enforceable.

11.     Executive Representations and Agreements. The Executive agrees that
the Executive and the Company are engaged in a highly competitive business and,
due to the Executives position with the Company and the nature of the
Executives work, the Executives engaging in any business which is competitive
with that of the Company will cause the Company great and irreparable harm. The
Executive represents and warrants that the time, scope and geographic area
restricted by the foregoing paragraph(s) pertaining to no
hire/non-solicitation, non-competition, confidentiality and nondisclosure are
reasonable, that the enforcement of the restrictions contained in the foregoing
paragraphs would not be unduly burdensome to the Executive, and that the
Executive will be able to earn a reasonable living while abiding by the terms
included herein. The Executive agrees that the restraints created by the
covenants in the foregoing paragraph(s) pertaining to no hire/non-solicitation,
non-competition, confidentiality and nondisclosure are no greater than
necessary to protect the legitimate interests of the Company, including its
confidential business or proprietary information and trade secrets, including
but not limited to, the Trade Secrets. Similarly, the Executive agrees that
the need of the Company for the protection afforded by the covenants of the
foregoing paragraphs pertaining to no hire/non-solicitation, non-competition,
confidentiality and nondisclosure are not outweighed by either the hardship to
the Executive or any injury likely to the public. The Executive agrees that
any breach by him of the foregoing provisions pertaining to no
hire/non-solicitation, non-competition, confidentiality and nondisclosure will
entitle the Company to discontinue any payments specified in Sections 2, 5 or
6, above, for which the Executive might be eligible based on the terms of those
Sections. Notwithstanding the suspension or discontinuation of any such
payments, the Executive agrees that the Company is entitled to insist on full
compliance by the Executive with the full terms, including time periods,
described in his promises not to hire/solicit, compete or disclose confidential
information or Trade Secrets. Any delay by the Company in discontinuing payment
shall not be construed as a waiver of any rights to discontinue payment.

12.     Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never constituted a 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 here from. Furthermore, in lieu

-11-



---



##### 



of such illegal, invalid or
unenforceable provision, there shall be added as part of this Agreement, a
provision as similar in its terms to such illegal, invalid or enforceable
provision as may be possible and be legal, valid and enforceable.

13.     Arbitration.

(a) The parties agree that any controversy or claim (including all claims
pursuant to common and statutory law) relating to this Agreement or arising out
of the Executives employment with the Company, shall be resolved exclusively
through arbitration pursuant to the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association (AAA). Any such
arbitration proceeding shall take place in Dallas County, Texas. All disputes
shall be resolved by a single arbitrator. The arbitrator will have the
authority to award the same remedies, damages and costs that a court could
award. The arbitrator shall issue a reasoned award explaining the decision,
the reasons for the decision and any damages awarded. The arbitrators
decision will be final and binding. The judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. This
provision can be enforced under the Federal Arbitration Act.

(b) As the sole exception to the exclusive and binding nature of the
arbitration commitment set forth above, the Executive and the Company agree
that the Company shall have the right to initiate an action in a court of
competent jurisdiction in order to request temporary, preliminary and permanent
injunctive or other equitable relief, including, without limitation, specific
performance, to enforce the terms of Sections 8, 9, 10 or 11 or above without
the necessity of proving inadequacy of legal remedies or irreparable harm or
posting bond. However, nothing in this section should be construed to
constitute a waiver of the parties rights and obligations to arbitrate
regarding matters other than those specifically addressed in this paragraph.

(c) Should a court of competent jurisdiction determine that the scope of
any provision of this Section 13 is too broad to be enforced as written, the
parties intend that the court reform the provision to such narrower scope as it
determines to be reasonable and enforceable.

14.     Survival. The Executive acknowledges and agrees that this Agreement,
including but not limited to Sections 8, 9, 10, 11, 12, 13, 15(a) and 15(d),
shall survive the termination of the Executives employment under this
Agreement for whatever reason. The existence of any claim or cause of action
of the Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants of the Executive contained in this Agreement, including but not
limited to those contained in Sections 8, 9, 10, 11 and 13.

15.     Miscellaneous.

(a) Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other must be in writing and must be either:



| |                          
| | -------------------------
| | (i) personally delivered;

-12-



---



##### 





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | (ii) mailed by registered or certified mail, postage prepaid with
return receipt requested;



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | (iii) delivered by overnight express delivery service or same-day
local courier service; or



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) delivered by telex or facsimile transmission, to the address
set forth below, or to such other address as may be designated by the
parties from time to time in accordance with this Section 15(a):

|                   |  |                                  
|------------------ |  | ---------------------------------
|If to the Company: |  | Zale Delaware, Inc.              
|                   |  | 901 W. Walnut Hill Lane          
|                   |  | Irving, Texas 75038              
|                   |  | Attention:Chief Executive Officer
|                   |  |                                  
|with a copy to:    |  | General Counsel                  
|                   |  |                                  
|If to Executive:   |  | Mr. Mark R. Lenz                 
|                   |  | 3812 Hillwood Way                
|                   |  | Bedford, Texas 76021             

Notices delivered personally or by overnight express delivery service or
by local courier service are deemed given as of actual receipt. Notices mailed
within the continental United States are deemed given three business days after
mailing. Notices delivered by telex or facsimile transmission are deemed given
upon receipt by the sender of the answer back (in the case of a telex) or
transmission confirmation (in the case of a facsimile transmission).

(b) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or written, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect to the subject matter of this
Agreement.

(c) Modification. No change or modification of this Agreement is valid or
binding upon the parties, nor will any waiver of any term or condition in the
future be so binding, unless the change or modification or waiver is in writing
and signed by the parties to this Agreement.

(d) Governing Law and Venue. The parties acknowledge and agree that this
Agreement and the obligations and undertakings of the parties under this
Agreement will be performable in Irving, Dallas County, Texas. This Agreement
is governed by, and construed in accordance with, the laws of the State of
Texas. If any action is brought to enforce or interpret this Agreement, venue
for the action will be in Dallas County, Texas.

(e) Counterparts. This Agreement may be executed in counterparts, each of
which constitutes an original, but all of which constitutes one document.

-13-



---



##### 



(f) Costs. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, each party shall bear its own costs and
expenses.

(g) Estate. If the Executive dies prior to the expiration of the Term or
during a period when monies are owing to him, any monies that may be due him
from the Company under this Agreement as of the date of his death shall be paid
to his estate and as when otherwise payable.

(h) Assignment. The Company shall have the right to assign this Agreement
to its successors or assigns. The terms successors and assigns shall
include any person, corporation, partnership or other entity that buys all or
substantially all of the Companys assets or all of its stock, or with which
the Company merges or consolidates. The rights, duties and benefits to the
Executive hereunder are personal to him, and no such right or benefit may be
assigned by him.

(i) Binding Effect. This Agreement is binding upon the parties hereto,
together with their respective executors, administrators, successors, personal
representatives, heirs and permitted assigns.

(j) Waiver of Breach. The waiver by the Company or the Executive of a
breach of any provision of this Agreement by the Executive or the Company may
not operate or be construed as a waiver of any subsequent breach.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

| |     |                     |                            
| | --- | ------------------- | ---------------------------
| | By: | /s/
Mark R. Lenz   
| |     |                    
| |     | Mark R. Lenz       
| |     |                     |                            
| |     | ZALE DELAWARE, INC.
| |     |                     |                            
| |     | By:                 | /s/ Mary Forté             
| |     |                     |                            
| |     |                     |                            
| |     | Its:                | President, CEO and Director
| |     |                     |                            

-14-