Document:

exv10w5

Exhibit 10.5

Exhibits A through E to Eugene Kahn Employment Agreement, 

dated as of May 29, 2007

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EXHIBIT A

CLAIRE’S INC.

AMENDED AND RESTATED

STOCK INCENTIVE PLAN

Section 1. Filed previously as Exhibit 10.3 to the Registration Statement on Form S-4 (File No.
333-148108) by the Company on December 17, 2007.

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EXHIBIT B

BAUBLE HOLDINGS CORP.

c/o Apollo Management VI, L.P.

10250 Constellation Boulevard

Suite 2900

Los Angeles, CA 90067

May 29, 2007

Eugene S. Kahn

2400 W. Central Rd.

Hoffman Estates, IL 60192

Re: Grant of Stock Options

Dear Gene:

We are pleased to inform you that you have been granted options to purchase 1,353,280 shares of
common stock of Bauble Holdings Corp. (the “Company”). As further described below, the options
have varying features relating to vesting and are denominated as an “Investment Option”, a “Time
Option” a “Target Performance Option” and a “Stretch Performance Option”. These options and are
collectively referred to as the “Options”, and the Target Performance Option and the Stretch
Performance Option are collectively referred to as the “Performance Options”. The Time Option and
the Performance Options have been granted pursuant to the Company’s Stock Incentive Plan (the
“Plan”), a copy of which is attached, and are subject in all respects to the provisions of the
Plan, except as specifically modified hereby. The Investment Option has not been granted under the
Plan and shall have no effect on the number of options that may be awarded under the Plan.
However, in all other respects, the Investment Option shall be treated as if it were awarded under
the Plan, and shall be subject to the terms and conditions of the Plan, except as specifically
modified hereby. Capitalized terms not otherwise defined in the text are defined in the Plan.

	1.	 	Investment Option: The key terms of the Investment Option are as follows:

	 	(a)	 	Number of Shares. 100,000
	 
	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting. The Investment Option is fully vested and immediately
exercisable.

	2.	 	Time Option: The key terms of the Time Option are as follows:

	 	(a)	 	Number of Shares. 477,440

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	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting. The Time Option will vest and become exercisable in four
equal annual installments on May 29, 2008, 2009, 2010 and 2011, provided that the Time
Option will become fully vested and exercisable immediately prior to a “Change of
Control” (as defined in the Employment Agreement among you and the Company dated as of
April 19, 2007 (the “Employment Agreement”).

	3.	 	Target Performance Option: The key terms of the Target Performance Option are as
follows:

	 	(a)	 	Number of Shares. 477,440
	 
	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting.

	 	(i)	 	If on any Measurement Date, the Value Per Share equals or
exceeds the Target Stock Price (the “Target Performance Goal”), then (1) if
such Measurement Date is other than the date of a Bauble Investors Liquidity
Event, the Target Performance Option will vest and become exercisable in two
equal annual installments on each of the first two anniversaries of such
Measurement Date, provided that if a Change of Control occurs after any such
Measurement Date, any unvested installment shall become fully vested
immediately prior to the Change of Control, and (2) if such Measurement Date
is the date of a Bauble Investors Liquidity Event, the Target Performance
Option will become fully vested and immediately exercisable at such time.
	 
	 	(ii)	 	If, on any Measurement Date prior to a Qualified IPO, the
Target Performance Goal would be satisfied by disregarding in the calculation
of Net Equity Value, some portion, but not all, of your Target Performance
Option as well as similar target performance options granted to other
employees, then a portion of your Target Performance Option shall vest, as
determined by the Option Committee in a fair and equitable manner.

	 	(d)	 	Definitions. For purposes of both the Target Performance Option and
the Stretch Performance Option:

	 	(i)	 	“Bauble Investors Liquidity Event” means any transaction
(including, without limitation, a stock sale, redemption or buy back, merger,
consolidation or otherwise) immediately following which all of the Shares held
by all Bauble Investors have been exchanged for or converted into
consideration, all or substantially all of which consists of cash or readily
marketable securities that

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	 	 	 	the Bauble Investors can immediately resell for cash at prevailing quoted
prices without legal, contractual or market restrictions.
	 
	 	(ii)	 	“Fully Diluted Shares” means, on any Measurement Date, the
number of Shares outstanding, plus the number of Shares subject to all
outstanding options, warrants and rights to acquire Shares, whether or not
exercisable.
	 
	 	(iii)	 	“Measurement Date” means (1) prior to a Qualified IPO, the
last day of any fiscal quarter, starting with the last day of the eight full
fiscal quarter after May 29, 2007, (2) following a Qualified IPO, each trading
day, starting with the 90th trading day following the Qualified IPO, or (3)
the date of a Bauble Investors Liquidity Event, whether before or after a
Qualified IPO.
	 
	 	(iv)	 	“Net Equity Value” means (1) 8.5 multiplied by the Company’s
consolidated earnings, before interest, income taxes, depreciation and
amortization (“EBITDA”) for the four fiscal quarters ending upon a Measurement
Date, plus (2) the sum of cash, cash equivalents, and the aggregate exercise
price of all outstanding options or warrants to purchase Shares, whether or
not exercisable, in each case as of the Measurement Date, less (3) debt as of
the Measurement Date. EBITDA, cash and debt shall be determined by the Option
Committee based on the Company’s financial statements for such period, subject
to such adjustments to reflect unusual, nonrecurring or extraordinary events
as the Option Committee shall deem equitable and appropriate.
	 
	 	(v)	 	“Stretch Target Stock Price” means $10.00, accumulated at an
effective annual rate of 32% from May 29, 2007 to the Measurement Date,
provided that the Option Committee shall make such adjustment to the Stretch
Target Stock Price as it reasonably determines is equitable and appropriate to
reflect changes to the outstanding Shares or capital structure of the Company,
including contributions and distributions of capital.
	 
	 	(vi)	 	“Target Stock Price” means $10.00, accumulated at an
effective annual rate of 22.5% from May 29, 2007 to the Measurement Date,
provided that the Option Committee shall make such adjustment to the Target
Stock Price as it reasonably determines is equitable and appropriate to
reflect changes to the outstanding Shares or capital structure of the Company,
including contributions and distributions of capital.
	 
	 	(vii)	 	“Value Per Share” means (1) prior to a Qualified IPO, the
Net Equity Value divided by the Fully Diluted Shares, (2) following a
Qualified IPO, the average closing price of a Share for the period

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	 	 	 	of 90 consecutive trading days ending on the Measurement Date, or (3) upon
a Bauble Investors Liquidity Event, the price per Share realized by the
Bauble Investors.

	4.	 	Stretch Performance Option: The key terms of the Stretch Performance Option are as
follows:

	 	(a)	 	Number of Shares. 298,400
	 
	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting.

	 	(i)	 	If on any Measurement Date, the Value Per Share equals or
exceeds the Stretch Stock Price (the “Stretch Performance Goal”), then (1) if
such Measurement Date is other than the date of a Bauble Investors Liquidity
Event, the Stretch Performance Option will vest and become exercisable in two
equal annual installments on each of the first two anniversaries of such
Measurement Date, provided that if a Change of Control occurs after any such
Measurement Date, any unvested installment shall become fully vested
immediately prior to the Change of Control, and (2) if such Measurement Date
is the date of a Bauble Investors Liquidity Event, the Stretch Performance
Option will become fully vested and immediately exercisable at such time.
	 
	 	(ii)	 	If, on any Measurement Date prior to a Qualified IPO, the
Stretch Performance Goal would be satisfied by disregarding in the calculation
of Net Equity Value, some portion, but not all, of your Stretch Performance
Option as well as similar stretch performance options granted to other
employees, then a portion of your Stretch Performance Option shall vest, as
determined by the Option Committee in a fair and equitable manner.

	5.	 	Termination of the Options. The Options shall terminate on the earliest of:

	 	(a)	 	immediately upon termination of your employment if for Cause;
	 
	 	(b)	 	immediately upon termination of your employment for any reason as to the
portion of any Option that did not vest prior to or upon the date of such termination;
	 
	 	(c)	 	the 91st day following the date of termination of your employment, other than
for Cause, death, Total Disability (as defined in your Employment Agreement) or other
than under circumstances entitling you to severance benefits under Section 4.3 of your
Employment Agreement;

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	 	(d)	 	the 181st day following the date of termination of your employment under
circumstances entitling you to severance benefits under Section 4.3 of your Employment
Agreement;
	 
	 	(e)	 	the first anniversary of the date of termination of your employment by
reason of your death or Total Disability;
	 
	 	(f)	 	as to any Performance Option, the date of a Bauble Investors Liquidity Event
to the extent the Target Performance Goal or Stretch Performance Goal, as applicable,
is not achieved at such time, or was not previously achieved;
	 
	 	(g)	 	the seventh anniversary of the date hereof; and
	 
	 	(h)	 	cancellation, termination or expiration of the Options pursuant to action
taken by the Option Committee in accordance with Section 7 of the Plan.

	 	 	Notwithstanding the forgoing, following a Change of Control, paragraphs 5(c), (d) and (e)
above shall be inapplicable.
	 
	6.	 	Vesting upon Certain Terminations. As to the Time Option and each Performance Option
where the applicable Performance Goal had previously been achieved (i) each such Option will
become fully vested and exercisable upon termination of your employment by reason of your
death or “Total Disability”, as defined in your Employment Agreement, and (ii) a portion of
each such Option will become vested and exercisable upon termination of your employment under
circumstances entitling you to severance benefits under Section 4.3 of your Employment
Agreement, such portion to equal the portion of each such Option that would have vested on the
next scheduled vesting date had your employment not so terminated, multiplied by a fraction,
the numerator of which is the number of days that elapsed from the most recent vesting date to
the date of such termination, and the denominator of which is 365.
	 
	7.	 	Federal Taxes: The Options granted to you are treated as “nonqualified options” for
federal tax purposes, which means that when you exercise, the excess of the value of the
Shares issued on exercise over the exercise price paid for the Shares is income to you,
subject to wage-based withholding and reporting. When you sell the Shares acquired upon
exercise, the excess (or shortfall) between the amount you receive upon the sale and the value
of the shares at the time of exercise is treated as capital gain (or loss). State and local
taxes may also apply. You should consult your personal tax advisor for more information
concerning the tax treatment of your Options.

We are excited to give you this opportunity to share in our future success. Please indicate your
acceptance of this option grant and the terms of the Plan by signing and returning a copy of this
letter.

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	Sincerely,

BAUBLE HOLDINGS CORP.

 	 	 
	By:  	 	 	 
	 	Name:  	Lance Milken 	 	 
	 	Title:  	Vice President 	 	 
	 
	Agreed to and Accepted by:

 	 	 
	 	 	 
	Eugene S. Kahn 	 	 
	 	 	 	 

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EXHIBIT C

BAUBLE HOLDINGS CORP.

c/o Apollo Management VI, L.P.

10250 Constellation Boulevard

Suite 2900

Los Angeles, CA 90067

May 29, 2007

Eugene S. Kahn

2400 W. Central Rd.

Hoffman Estates, IL 60192

Re: Acquisition of Shares

Dear Gene:

This will evidence our agreement, effective on May 29, 2007 (the “Effective Date”) relating to the
purchase by you from Bauble Holdings Corp., a Delaware corporation (the “Company”), of 100,000
shares of the Company’s common stock (the “Common Stock”), as well as the award by the
Company to you of 75,000 shares of Common Stock, in each case on the terms and conditions set forth
in this letter agreement (the “Letter Agreement”). The shares of Common Stock so purchased are
hereinafter referred to as the “Purchased Shares” and the shares of Common Stock so awarded are
hereinafter referred to as the “Awarded Shares”, and collectively are referred to as the “Shares”.
Capitalized terms used below and not otherwise defined in the text shall have the meaning set forth
in paragraph 7.

	1.	 	Purchase Price. The purchase price per Purchased Share is $10.00, for a total of
$1,000,000 payable by wire transfer to the Company on the Effective Date. The Awarded Shares
shall be issued for no cost to you (other than in respect of taxes, as provided in paragraph 6
below).
	 
	2.	 	Vesting. All of the Purchased Shares will be treated as “Vested Shares” on the
Effective Date. The Awarded Shares will be “Unvested Shares” and will become “Vested Shares”
as to 25% of the total number of Shares on each of the first four anniversaries of the
Effective Date, provided that all of the Unvested Shares will become Vested Shares upon a
“Change of Control” (as defined in the Employment Agreement among you and the Company dated as
of April 19, 2007 (the “Employment Agreement”)), or upon termination of your employment by
reason of your death or “Total Disability” as defined in your Employment Agreement. In
addition, upon a termination of your employment under circumstances entitling you to severance
benefits under Section 4.3 of your Employment Agreement, a number of Unvested Shares shall
become Vested Shares as is equal to the number of Unvested Shares that would have become
Vested Shares on the next scheduled vesting date had

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	 	 	your employment not so terminated, multiplied by a fraction, the numerator of which is the
number of days that elapsed from the most recent vesting date to the date of such termination,
and the denominator of which is 365.
	 
	3.	 	Forfeiture; Repurchase Right.

     (a) Upon termination of your employment with the Company and its Affiliates for any
reason, all of your Unvested Shares shall immediately be forfeited to the Company for no
consideration.

     (b) The Company shall have the right (but not the obligation) to repurchase any or all of
your Vested Shares upon termination of your employment with the Company and its Affiliates for
any reason. Such right shall be exercisable by the Company during the one year period
following the date of such termination’ unless prior to the Company’s exercise of such right
you have disposed of the Shares in accordance with the terms of this Letter Agreement.
Notwithstanding the foregoing, this paragraph 3(b) shall not apply to any of the Purchased
Shares.

     (c) The price per Share to be paid by the Company should it choose to exercise its
repurchase right pursuant to paragraph 3(b) shall equal the Fair Market Value per Share;
provided, however, that the price per Share to be paid by the Company shall
equal the lower of the price per Share you paid to the Company (if any), less any distributions
you received in respect of such Share, or the Fair Market Value per Share if the Shares are to
be repurchased following termination of your employment for Cause, or are to be repurchased
following your termination of employment for any reason, and prior to such repurchase you
engage in “Specified Conduct”. For these purposes “Specified Conduct” means (i) your
unauthorized disclosure of confidential information relating to the Company or its Affiliates,
(ii) your engaging, directly or indirectly, as an employee, partner, consultant, director,
stockholder, owner, or agent in any business that is competitive with the businesses conducted
by the Company and its Affiliates at the time of your termination of employment, (iii) your
soliciting or inducing, directly or indirectly, any former, present or prospective customer or
client of the Company or its Affiliates to purchase any services or products offered by the
Company or its Affiliates from any Person other than the Company or its Affiliates, or (iv)
your hiring, directly or indirectly, any individual who was an employee of the Company or its
Affiliates within the six month period prior to your termination of employment, or your
soliciting or inducing, directly or indirectly, any such individual to terminate his or her
employment with the Company or its Affiliates.

     (d) The price per Share to be paid by the Company should it choose to exercise its
repurchase right shall be made paid by cash or plain check against delivery of certificates
representing the Shares repurchased by the Company. The Company may offset against the payment
of the repurchase price any amounts owed by you to the Company or any Affiliate of the Company
(including under the Note described in paragraph 6(c) below). In such case the amount owed
will to the extent of the offset be treated as satisfied.

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     (e) Should the Company choose not to exercise its repurchase right, or is prohibited by
law or contract from doing so, each Bauble Investor or its controlling Affiliates may exercise
such right as if it were the Company.

	4.	 	Restrictions/Rights on Shares.

     (a) Drag-Along Right. If one or more Bauble Investors notifies you that it or
they desire to sell shares of Common Stock representing at least a majority of the outstanding
 shares of Common Stock of the Company (disregarding any sale to Affiliates of such Bauble
Investor) and specifies the terms and conditions of such proposed sale, then you shall take all
necessary and desirable actions reasonably requested by such Bauble Investors in connection
with the consummation of such sale, and within ten (10) business days of the receipt of such
notice (or such longer period of time as such Bauble Investors shall designate in such notice)
you shall cause a pro rata number of your Shares to be sold to the designated purchaser on the
same terms and conditions for the same per share consideration and at the same time as the
shares of Common Stock being sold by such Bauble Investors. In furtherance, and not in
limitation, of the foregoing, in connection with such a sale, you will, (i) consent to and
raise no objections against the sale or the process pursuant to which it was arranged, (ii)
waive any dissenter’s rights and other similar rights and (iii) execute all documents
containing such terms and conditions as those executed by such Bauble Investors as directed by
such Bauble Investors.

     (b) Tag-Along Right. If one or more Bauble Investors desires to sell shares of
Common Stock representing at least a majority of the outstanding shares of Common Stock of the
Company (disregarding any sale to Affiliates of such Bauble Investor), the Company shall notify
you in writing of the impending sale. After such notice, you may, but are not obligated to, by
written notice, request that such Bauble Investor cause such designated purchaser to purchase
on the same terms and conditions as are applicable to such Bauble Investor’s Shares, the number
of your shares of Common Stock to be sold, which as a percentage of your shares of Common Stock
shall not exceed the percentage of such Bauble Investor’s Shares to be sold. The Company shall
cause such Bauble Investor to agree, within ten (10) business days of the receipt of such
notice (or such longer period of time as such Bauble Investor shall designate in such notice)
to cause your shares of Common Stock to be purchased by the designated purchaser on the same
terms and conditions for the same per share consideration and at the same time as the sale of
the Bauble Investor’s Shares. In furtherance, and not in limitation, of the foregoing, in
connection with such a sale, you will, (i) consent to and raise no objections against the sale
or the process pursuant to which it was arranged, (ii) waive any dissenter’s rights and other
similar rights and (iii) execute all documents containing such terms and conditions as those
executed by such Bauble Investor as directed by such Bauble Investor.

     (c) Restrictions on Transfer. Except for transfers made pursuant to paragraphs 3,
4(a) and 4(b), the Shares may not be sold, pledged, encumbered or otherwise transferred, other
than by the laws of decent and distribution (but the Shares shall in any event remain subject
to the terms of this Letter Agreement).

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     (d) Voting. You hereby irrevocably appoint Apollo Management VI, L.P. on behalf
of certain affiliated co-investment partnerships (with full power of substitution), as your
proxy and attorney-in-fact (in such capacity, the “Proxy Holder”) to vote and give or withhold
consent, with respect to all shares of Common Stock held by you at any time, for all matters
subject to your vote from time to time in such manner as the Proxy Holder shall determine in
its sole and absolute discretion, whether at any meeting (whether annual or special and whether
or not an adjourned meeting) of the Company or by written consent or otherwise, giving and
granting to the Proxy Holder all powers you would possess if personally present and hereby
ratifying and confirming all that the Proxy Holder shall lawfully do or cause to be done by
virtue hereof. The Proxy Holder shall not have any liability to you as a result of any action
taken or failure to take action pursuant to the foregoing proxy except for any action or
failure to take action not taken or omitted in good faith or which involves intentional
misconduct or a knowing violation of applicable law. You hereby affirm that this irrevocable
proxy is given in consideration for the mutual agreements contained in this Agreement and that
this irrevocable proxy is coupled with an interest and may, under no circumstances, be revoked.
The Company hereby acknowledges receipt of and the validity of the foregoing irrevocable proxy,
and agrees to recognize the Proxy Holder as the sole attorney and proxy for you at all times.
You intend that this irrevocable proxy is executed and intended to be irrevocable in accordance
with the provisions of Section 212 of the Delaware General Corporation Law.

     (e) Qualified IPO. The restrictions and rights contained in paragraphs 3(b),
4(a), 4(b) and 4(d) shall lapse upon a Qualified IPO, and the restrictions contained in
paragraph 4(c) shall lapse on the first anniversary of a Qualified IPO; provided,
however, that paragraph 4(c) shall remain in effect with respect to Unvested Shares
until they become Vested Shares; provided further, that unless otherwise
determined by the Company, you shall enter into such standstill agreements and related
agreements as the managing underwriters of such Qualified IPO may request.

     (f) Certificates for Shares. The Shares issued may be evidenced in such manner as
the Company shall determine. If certificates representing the Shares are registered in your
name, the certificates evidencing your Shares may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to your Shares, and the Company may retain
physical possession of the certificates, in which case you shall be required to have delivered
a power of transfer to the Company, endorsed in blank, relating to your Shares.

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	5.	 	Representations.

     (a) Authority. You have the requisite power, authority and capacity to execute
this Letter Agreement and to perform your obligations under this Letter Agreement and to
consummate the transactions contemplated hereby, and your acceptance has been duly and validly
executed and delivered by you and constitutes your legal, valid and binding obligation,
enforceable against you in accordance with its terms, except to the extent that such validly
binding effect and enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium and other laws relating to or affecting creditors’ rights generally.

     (b) Shares Unregistered. You acknowledge that (i) the offer and sale, or grant of
the Shares has not been registered under applicable securities laws; (ii) the Shares acquired
by you must be held indefinitely; (iii) there is no established market for the Shares and it is
not anticipated that there will be any such market for the Shares in the foreseeable future;
(iv) you are acquiring the Shares for the purpose of investment and not with a view to, or for
resale in connection with, the distribution thereof, and not with any present intention of
distributing the Shares and you have no present plan or intention to sell any of the Shares;
(v) either you are an “accredited investor” under Rule 501(a) of the Securities Act of 1933, or
your knowledge and experience in financial and business matters are such that you are capable
of evaluating the merits and risks of your investment in the Shares; (vi) you and your
representatives, including your professional, financial, tax and other advisors, if any, have
carefully considered your proposed investment in the Shares, and you understand and have taken
cognizance of (or have been advised by your representatives as to) the risk factors related to
the acquisition of the Shares, and no representations or warranties have been made to you or
your representatives concerning the Shares, the Company or the Company’s business, operations,
financial condition or prospects or other matters; (vii) in making your decision to purchase
the Shares, you have relied upon independent investigations made by you and, to the extent
believed by you to be appropriate, your representatives, including your professional,
financial, tax and other advisors, if any; and (viii) you and your representatives have been
given the opportunity to request to examine all documents of, and to ask questions of, and to
receive answers from, the Company and its representatives concerning the terms and conditions
of the acquisition of the Shares and to obtain any additional information which you or your
representatives deem necessary.

     (c) Acknowledgement. You acknowledge: (i) that this award of the opportunity to
purchase the Shares is a one-time benefit, which does not create any contractual or other right
to receive future awards, or benefits in lieu of awards; (ii) that all determinations with
respect to any such future awards, including, but not limited to, the times when awards shall
be granted, the number of shares subject to each award, the exercise or purchase price, and the
time or times when each award shall vest, will be at the sole discretion of the Company; (iii)
that the purchase of the Shares shall not create a right to further employment with the Company
and shall not interfere with the Company’s or your ability to terminate your employment
relationship at any time with or without cause; (iv) that your purchase the Shares is

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voluntary; and (v) that this award is not part of normal or expected compensation for
purposes of calculating any severance, resignation, redundancy, end of service payments,
bonuses, long-service awards, pension or retirement benefits or similar payments.

	6.	 	Taxes on Awarded Shares.

     (a) Awarded Shares. Unless you file an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended (the “Code”), you will recognize income, taxable at
ordinary income rates and subject to payroll tax withholding, on each date the Awarded Shares
become Vested Shares in an amount equal to the fair market value of such Shares. However, if
you timely file a Section 83(b) election, the date for measuring the amount of ordinary
compensation income you must recognize is the Effective Date. In that case, the Company will
take the position for all returns and reports it must file with the Internal Revenue Service
(including your 2007 Form W-2) that the value of the Awarded Shares equals $750,000. To be
effective, a Section 83(b) election must be filed with the Internal Revenue Service within 30
days of the Effective Date and attached to your 2007 federal income tax return, and a copy of
the election must be filed with the Company. However, if you forfeit the Shares, you will not
be entitled to recover the taxes you paid. When you sell the Shares, you will recognize
capital gain (or loss) equal to the difference between the amount realized on the sale, and
your tax basis in the shares (which is the amount of ordinary compensation income previously
recognized). Such gain (or loss) will be taxed as long term capital gain (or loss) if you held
the shares for more than one year. Your holding period starts on the vesting dates, unless you
make a Section 83(b) election, in which case the holding period will start on the Effective
Date. A sample form of Section 83(b) election is attached as Appendix I for your information.
However, it is your responsibility to timely file such election. Because the Company is a
privately held company, the determination of the fair market value of its shares is
complicated. If the tax authorities determine that the fair market value should be calculated
differently than the Company’s calculation, you may have additional tax consequences. Tax laws
change frequently and sometimes on a retroactive basis. You are advised to consult with your
own tax or financial advisor, and should not rely on the Company’s description of tax
consequences above.

     (b) Withholding. The Company shall have the right to withhold from any amount
payable or allocable to you such amounts as may be required in order for the Company to satisfy
any withholding obligation that it may have under applicable law, and may condition the vesting
of any Shares on your making arrangements necessary to enable the Company to satisfy any such
withholding obligation.

     (c) Tax Loan. If you make a Section 83(b) election, upon the Company’s receipt of
its copy thereof, the Company will loan to you an amount equal to the federal, state and local
taxes due by reason of such election (determined assuming you pay taxes at the highest
applicable marginal rate), subject to your execution of (i) the Note attached as Appendix II,
which will govern the repayment of such advance and the circumstances under which such
repayment will be forgiven, and (ii) the

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Pledge Agreement attached as Appendix III, which will secure your repayment obligation to
the Company.

	7.	 	Definitions.

     (a) “Affiliate” means, with respect to any Person, any other Person that controls, is
controlled by or is under common control with such Person. For the purposes of this
definition, “control” (including, with its correlative meanings, the terms “controlled by” and
“under common control with”), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of securities, by contract or otherwise.

     (b) “Bauble Investor” shall mean any of Apollo Investment Fund VI, L.P., Apollo Investors
Claire’s A LLC, and Apollo Investors Claire’s B LLC, and each of their successors or assigns.

     (c) “Cause” shall have the meaning ascribed thereto in the Employment Agreement.

     (d) “Fair Market Value” of the Shares on any given date shall be determined in good faith
by the Board of Directors of the Company, taking into account such factors as the Board
determines are appropriate.

     (e) “Person” means an individual, partnership, corporation, limited liability company or
partnership, trust, unincorporated organization, joint venture, government (or agency or
political subdivision thereof) or any other entity of any kind.

     (f) “Qualified IPO” means a sale by the Company of shares of Common Stock in an initial
underwritten (firm commitment) public offering registered under the Securities Act of 1933,
with gross proceeds to the Company of not less than $300 million, resulting in the listing of
the common stock on a nationally recognized stock exchange, including without limitation the
Nasdaq National Market System.

	8.	 	Employee Data Privacy. As a condition of the award of this opportunity to purchase
the Shares, you consent to the collection, use and transfer of personal data as described in
this paragraph 8. You understand that the Company and its Affiliates hold certain personal
information about you including, but not limited to, your name, home address and telephone
number, date of birth, social security number, salary, nationality, job title, common shares
or directorships held in the Company, details of all other entitlement to common shares
awarded, cancelled, exercised, vested, unvested or outstanding in your favor, for the purpose
of managing and administering the award of this opportunity to purchase Shares (“Data”). You
further understand that the Company and/or its Affiliates will transfer Data amongst
themselves as necessary for the purposes of implementation, administration and management of
this award, and that the Company and/or any of its Affiliates may each further transfer Data
to any third parties assisting the Company in such implementation, administration and
management. You authorize them to receive, possess, use, retain

15

 

	 	 	and transfer Data in electronic or other form, for the purposes of implementing, administering
and managing the award of this opportunity to purchase Shares, including any requisite transfer
of such Data as may be required for the administration of this award and/or the subsequent
holding common shares on your behalf to a broker or other third party with whom the shares
acquired on exercise may be deposited. You understand that he or she may, at any time, view
the Data, require any necessary amendments to it or withdraw the consent herein in writing by
contacting the local human resources representative.
	 
	9.	 	Third Party Beneficiaries Rights. The Bauble Investors and their Affiliates shall be
third party beneficiaries under paragraphs 3(e) and 4(a) above, and Apollo Management VI, L.P.
shall be a third party beneficiary under paragraph 4(d), and they each shall be entitled to
enforce their rights thereunder.
	 
	10.	 	Confidentiality. You agree not to disclose or discuss in any way the terms of this
offer to or with anyone other than members of your immediate family, or your personal counsel
or financial advisors (and you will advise such persons of the confidential nature of this
offer).
	 
	11.	 	Governing Law. All questions concerning the construction, validity and
interpretation of this Letter Agreement shall be governed and construed in accordance with the
domestic laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the State of
Illinois, except to the extent that laws of the Delaware apply as a result of the Company
being incorporated in Delaware.

* * * *

	 	 	 	 	 
	Sincerely,

BAUBLE HOLDINGS CORP.

 	 	 
	By:  	 	 	 
	 	Name:  	Lance Milken 	 	 
	 	Title:  	Vice President 	 	 
	 
	Agreed to and Accepted by: 

 	 	 
	 	 	 
	Eugene S. Kahn 	 	 
	 	 	 	 

16

 

	 	 	 	 	 

EXHIBIT D

Definition of Change of Control

     “Change of Control” means:

     (1) any event occurs the result of which is that any “Person,” as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, other than one or more Permitted Holders or their
Related Parties, becomes the beneficial owner, as defined in Rules l3d-3 and l3d-5 under the
Exchange Act (except that a Person shall be deemed to have “beneficial ownership” of all shares
that any such Person has the right to acquire within one year) directly or indirectly, of more than
50% of the Voting Stock of Holdings or any successor company, including, without limitation,
through a merger or consolidation or purchase of Voting Stock of Holdings; provided that none of
the Permitted Holders or their Related Parties have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the Board; provided
further that the transfer of 100% of the Voting Stock of Holdings to a Person that has an
ownership structure identical to that of Holdings prior to such transfer, such that Holdings
becomes a wholly owned Subsidiary of such Person, shall not be treated as a Change of Control;

     (2) after an initial public offering of Capital Stock of Holdings, during any period of two
(2)consecutive years, individuals who at the beginning of such period constituted the Board,
together with any new directors whose election by such Board or whose nomination for election by
the stockholders of Holdings was approved by a vote of a majority of the directors of Holdings then
still in office who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any reason to constitute a majority
of the Board then in office;

     (3) the sale, lease, transfer, conveyance or other disposition, in one or a series of related
transactions other than a merger or consolidation, of all or substantially all of the assets of
Holdings and its Subsidiaries taken as a whole to any Person or group of related Persons other than
a Permitted Holder or a Related Party of a Permitted Holder; or

     (4) the adoption of a plan relating to the liquidation or dissolution of Holdings.

     For purposes of this definition, the following terms shall have the meanings set forth below:

     An “Affiliate” of any specified Person means any other Person, whether now or
hereafter existing, directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For purposes hereof, “control” or any other
form thereof, when used with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms “controlling” and “controlled” shall have
meanings correlative to the foregoing.

17

 

     “Apollo” means Apollo Management VI, L.P. and its Affiliates or any entity controlled
thereby or any of the partners thereof.

     “Board” means the Board of Directors of Holdings or any committee thereof duly
authorized to act on behalf of such Board of Directors.

     “Capital Stock” of any Person means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in, however designated,
equity of such Person, including any Preferred Stock, but excluding any debt securities convertible
into such equity.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Holdings” means Bauble Holdings Corp., a Delaware corporation.

     “Permitted Holder” means Apollo.

     “Person” means any individual, corporation, partnership, limited liability company,
joint venture, association, business trust, joint-stock company, estate, trust, unincorporated
organization, government or other agency or political subdivision thereof or any other legal or
commercial entity.

     “Preferred Stock” as applied to the Capital Stock of any corporation means Capital
Stock of any class or classes, however designated, that is preferred as to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other class of such
corporation.

     “Related Party” means:

     (1) any controlling stockholder, 50% (or more) owned Subsidiary, or immediate family member
(in the case of an individual) of any Permitted Holder; or

     (2) any trust, corporation, partnership, limited liability company or other entity, the
beneficiaries, stockholders, partners, members, owners or Persons beneficially holding a 50% or
more controlling interest of which consist of any one or more Permitted Holders and/or such other
Persons referred to in the immediately preceding clause (1).

     “Subsidiary” means, with respect to any specified Person:

     (1) any corporation, association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the occurrence of any
contingency and after giving effect to any voting agreement or stockholders’ agreement that
effectively transfers voting power) to vote in the election of directors, managers or trustees of
the corporation, association or other business entity is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and

18

 

     (2) any partnership (a)the sole general partner or the managing general partner of which is
such Person or a Subsidiary of such Person or (b)the only general partners of which are that Person
or one or more Subsidiaries of that Person (or any combination thereof).

“Voting Stock” of an entity means all classes of Capital Stock of such entity then
outstanding and normally entitled to vote in the election of directors or all interests in such
entity with the ability to control the management or actions of such entity.

19

 

EXHIBIT E

FORM OF RELEASE

          I, Eugene S. Kahn, the undersigned, agree to accept the compensation, payments, benefits and
other consideration provided for in Section 4.3(c) of the employment agreement between me and by
and between Bauble Holdings Corp. (the “Company”) dated as of April 19, 2007 (the “Employment
Agreement”) in full resolution and satisfaction of, and hereby IRREVOCABLY AND UNCONDITIONALLY
RELEASE, REMISE AND FOREVER DISCHARGE the Company and Releasees from any and all agreements,
promises, liabilities, claims, demands, rights and entitlements of any kind whatsoever, in law or
equity, whether known or unknown, asserted or unasserted, fixed or contingent, apparent or
concealed, to the maximum extent permitted by law (“Claims”), which I, my heirs, executors,
administrators, successors or assigns ever had, now have or hereafter can, shall or may have for,
upon, or by reason of any matter, cause or thing whatsoever existing, arising, occurring or
relating to my employment and/or termination thereof with the Company and Releasees, or my status
as a stockholder of the Company and Releasees, at any time on or prior to the date I execute this
Release, including, without limitation, any and all Claims arising out of or relating to
compensation, benefits, any and all contract claims, tort claims, fraud claims, claims for bonuses,
commissions, sales credits, etc., defamation, disparagement, or other personal injury claims,
claims for accrued vacation pay, claims under any federal, state or municipal wage payment,
discrimination or fair employment practices law, statute or regulation, and claims for costs,
expenses and attorneys’ fees with respect thereto. This release and waiver includes, without
limitation, any and all rights and claims under Title VII of the Civil Rights Act of 1964, the
Civil Rights Acts of 1866, 1871 and 1991, the Employee Retirement Income Security Act, the Age
Discrimination in Employment Act (including but not limited to the Older Workers Benefit Protection
Act), the Americans with Disabilities Act, the National Labor Relations Act, the Family and Medical
Leave Act, the Equal Pay Act, the Sarbanes-Oxley Act, [add applicable state laws] and all
amendments to the foregoing, and any other federal, state or local statute, ordinance, regulation
or constitutional provision regarding employment, compensation, employee benefits, termination of
employment or discrimination in employment. Notwithstanding the above, I do not release my right
to any right to indemnification I may have as a director, officer or employee pursuant to
applicable law and/or the Company’s certificate of incorporation nor do I release any rights to any
earned and vested benefits to which I am entitled under the terms of any employee benefit plan
maintained by the Company or any of its subsidiaries.

          I represent and affirm (i) that I have not filed any Claim against the Company or Releasees
and (ii) that to the best of my knowledge and belief, there are no outstanding Claims.

          For the purpose of implementing a full and complete release and discharge of Claims, I
expressly acknowledge that this Release is intended to include in its effect, without limitation,
all the Claims described in the preceding paragraphs, whether known

20

 

or unknown, apparent or concealed, and that this Release contemplates the extinction of all
such Claims, including Claims for attorney’s fees. I expressly waive any right to assert after the
execution of this Release that any such Claim has, through ignorance or oversight, been omitted
from the scope of the Release.

          For purposes of this Release, the term “the Company and Releasees” includes the Company and
its past, present and future direct and indirect parents, subsidiaries, affiliates, divisions,
predecessors, successors, and assigns, and their past, present and future officers, directors,
shareholders, representatives, agents, attorneys and employees, in their official and individual
capacities, and all other related individuals and entities, jointly and individually, and this
Release shall inure to the benefit of and shall be binding and enforceable by all such entities and
individuals.

          I understand that I have a period of up to 21 days from my receipt of this Release to review
and consider this Release. I further understand that once I have signed this Release, I may
revoke it at any time during the 7 days following its execution by delivering a written notice of
revocation to the Company, attention General Counsel. I further understand that if I fail to
execute and return this Release to the Company, attention General Counsel, prior to the expiration
of such 21 day period, or revoke my execution of the Release during such 7 day period, I will not
be entitled to the compensation, payments, benefits and other consideration provided for in Section
4.3(c) of the Employment Agreement.

I ACKNOWLEDGE THAT I HAVE READ THIS

RELEASE AND I UNDERSTAND

AND ACCEPT ITS TERMS

	 	 	 	 
	 
	 	 	 
	 

	 	 	 
	Eugene S. Kahn

	 	Date	 
	 
	 	 	 
	Sworn to before me this

___ day of _________, 20___
	 	 	 
	 
	 	 	 
	  

Notary
Public

	 	 	 

21exv10w6

Exhibit 10.6

Exhibits A through D to James Conroy Employment Agreement, 

dated as of December 13, 2007

1

 

EXHIBIT A

CLAIRE’S INC.

AMENDED AND RESTATED

STOCK INCENTIVE PLAN

Section 1. Filed previously as Exhibit 10.3 to the Registration Statement on Form S-4 (File No.
333-148108) by the Company on December 17, 2007.

2

 

EXHIBIT B

CLAIRE’S INC.

2400 W. Central Rd.

Hoffman Estates, IL 60192

December 13, 2007

James Conroy

2771 NE 57th Court

Fort Lauderdale, FL 33308

Re: Grant of Stock Options

Dear James:

We are pleased to inform you that you have been granted options to purchase 437,5001
shares of common stock of Claire’s Inc. (the “Company”), the parent company of Claire’s Stores,
Inc. As further described below, the options have varying features relating to vesting and are
denominated as a “Time Option,” a “Target Performance Option,” and a “Stretch Performance Option.”
These options are collectively referred to as the “Options,” and the Target Performance Option and
the Stretch Performance Option are collectively referred to as the “Performance Options.” The Time
Option and the Performance Options have been granted pursuant to the Company’s Stock Incentive Plan
(the “Plan”), a copy of which is attached as Exhibit A, and the Options and underlying Shares are
subject in all respects to the provisions of the Plan (including, without limitation, Section 8),
except as specifically modified hereby. Capitalized terms not otherwise defined in the text or in
paragraph 7 are defined in the Plan.

	1.	 	Time Option: The key terms of the Time Option are as follows:

	 	(a)	 	Number of Shares. 175,000
	 
	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting. The Time Option will vest and become exercisable in four
equal annual installments on December [   ] of each of 2008, 2009, 2010 and 2011,
provided that the Time Option will become fully vested and exercisable immediately
prior to a Change of Control.

	2.	 	Target Performance Option: The key terms of the Target Performance Option are as
follows:

	 	(a)	 	Number of Shares. 175,000

 

			
	1	 	total of 1(a), 2(a), and 3(a)

3

 

	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting. If on any Measurement Date, the Value Per Share equals or
exceeds the Target Stock Price (the “Target Performance Goal”), then (1) if such
Measurement Date is other than the date of a Claire’s Investors Liquidity Event, the
Target Performance Option will vest and become exercisable in two equal annual
installments on each of the first two anniversaries of such Measurement Date, provided
that if a Change of Control occurs after any such Measurement Date, any unvested
installment shall become fully vested immediately prior to the Change of Control, and
(2) if such Measurement Date is the date of a Claire’s Investors Liquidity Event, the
Target Performance Option will become fully vested and immediately exercisable at such
time.

	3.	 	Stretch Performance Option: The key terms of the Stretch Performance Option are as
follows:

	 	(a)	 	Number of Shares. 87,500
	 
	 	(b)	 	Exercise Price per Share. $10.00
	 
	 	(c)	 	Vesting. If on any Measurement Date, the Value Per Share equals or
exceeds the Stretch Target Stock Price (the “Stretch Performance Goal”), then (1) if
such Measurement Date is other than the date of a Claire’s Investors Liquidity Event,
the Stretch Performance Option will vest and become exercisable in two equal annual
installments on each of the first two anniversaries of such Measurement Date, provided
that if a Change of Control occurs after any such Measurement Date, any unvested
installment shall become fully vested immediately prior to the Change of Control, and
(2) if such Measurement Date is the date of a Claire’s Investors Liquidity Event, the
Stretch Performance Option will become fully vested and immediately exercisable at
such time.

	4.	 	Termination of the Options. The Options shall terminate pursuant to the provisions
of Section 5 of the Plan, provided that Performance Options shall terminate no later than the
date of a Claire’s Investors Liquidity Event to the extent the Target Performance Goal or the
Stretch Performance Goal, as applicable, is not achieved at such time, or was not previously
achieved.
	 
	5.	 	Representations. By accepting this award of Options, you represent to the following,
and understand that the Company would not have granted this award to you but for your
representations and acknowledgements below.

	 	(a)	 	Shares Unregistered; Investor Knowledge. You acknowledge and agree
that (i) neither the grant of the Options nor the offer to acquire Shares upon
exercise thereof has been registered under applicable securities laws; (ii) there is
no established market for the Shares and it is not anticipated that there will be any
such market for the Shares in the foreseeable future;

4

 

	 	 	 	and (iii) your knowledge and experience in financial and business matters are such
that you are capable of evaluating the merits and risks of any investment in the
Shares.
	 
	 	(b)	 	Acknowledgement. You acknowledge and agree that: (i) this award is a
one-time benefit, which does not create any contractual or other right to receive
future awards, or benefits in lieu of awards; (ii) all determinations with respect to
any such future awards, including, but not limited to, the times when awards shall be
granted, the number of shares subject to each award, the exercise or purchase price,
and the time or times when each award shall vest, will be at the sole discretion of
the Company; (iii) this award is not part of normal or expected compensation for
purposes of calculating any severance, resignation, redundancy, end of service
payments, bonuses, long-service awards, pension or retirement benefits or similar
payments; and (iv) THAT THIS AWARD SHALL NOT CREATE A RIGHT TO FURTHER EMPLOYMENT WITH
THE COMPANY OR ITS AFFILIATES AND SHALL NOT INTERFERE WITH THE ABILITY OF THE COMPANY
OR ANY OF ITS AFFILIATES TO TERMINATE YOUR EMPLOYMENT RELATIONSHIP AT ANY TIME, AND
UPON TERMINATION OF YOUR EMPLOYMENT FOR ANY REASON WHATSOEVER, ANY RIGHTS IN RESPECT
OF THE OPTIONS OR THE UNDERLYING SHARES TO WHICH YOU WOULD HAVE BEEN ENTITLED HAD YOUR
EMPLOYMENT NOT TERMINATED SHALL LAPSE UPON THE DATE OF TERMINATION UNLESS EXPRESSLY
STATED OTHERWISE HEREIN OR THE PLAN, AND YOU SHALL NOT BE ENTITLED TO ANY COMPENSATION
IN RESPECT OF LOSS OF ALL OR ANY OF THE OPTIONS OR UNDERLYING SHARES.
	 
	 	(c)	 	Employee Data Privacy. You consent to the collection, use and
transfer of personal data as described in this paragraph 5(c). You understand that
the Company and its Affiliates hold certain personal information about you including,
but not limited to, your name, home address and telephone number, date of birth,
social security number, salary, nationality, job title, common shares or directorships
held in the Company, details of all other entitlement to common shares awarded,
cancelled, exercised, vested, unvested or outstanding in your favor, for the purpose
of managing and administering this award (“Data”). You further understand that the
Company and/or its Affiliates will transfer Data among themselves as necessary for the
purposes of implementation, administration and management of this award, and that the
Company and/or any of its Affiliates may each further transfer Data to any third
parties assisting the Company in such implementation, administration and management.
You authorize them to receive, possess, use, retain and transfer Data in electronic or
other form, for the purposes of implementing, administering and managing this award,
including any requisite transfer of such Data as may be required for the
administration of this award and/or the subsequent

5

 

	 	 	 	holding common shares on your behalf to a broker or other third party with whom the
 shares acquired on exercise may be deposited. You understand that he or she may,
at any time, view the Data, require any necessary amendments to it or withdraw the
consent herein in writing by contacting the local human resources representative.
	 
	 	(d)	 	Confidentiality. You agree not to disclose or discuss in any way the
terms of this award to or with anyone other than members of your immediate family, or
your personal counsel or financial advisors (and you will advise such persons of the
confidential nature of this offer).

	6.	 	Vesting upon Death/Disability. As to the Time Option, as well as the Performance
Options where the Target Performance Goal or Stretch Performance Goal, as applicable, had
previously been achieved, a portion of each such Option will become vested and exercisable
upon termination of your employment with the Company and its Affiliates by reason of your
death or Disability, such portion to equal the portion of each such Option that would have
vested on the next scheduled vesting date had your employment not so terminated, multiplied by
a fraction, the numerator of which is the number of days that elapsed from the most recent
vesting date to the date of such termination, and the denominator of which is 365.
	 
	7.	 	Definitions. For purposes of this letter:

	 	(a)	 	“Apollo” means Apollo Management VI, L.P. and its Affiliates or any entity
controlled thereby or any of the partners thereof.
	 
	 	(b)	 	“Board” means the board of directors of the Company, or any committee thereof
duly authorized to act on behalf of the Board.
	 
	 	(c)	 	“Capital Stock” of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests in,
however designated, equity of such Person, including any Preferred Stock, but
excluding any debt securities convertible into such equity.
	 
	 	(d)	 	“Change of Control” means:

	 	(i)	 	any event occurs the result of which is that any “Person,” as
such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than
one or more Permitted Holders or their Related Parties, becomes the beneficial
owner, as defined in Rules l3d-3 and l3d-5 under the Exchange Act (except that
a Person shall be deemed to have “beneficial ownership” of all shares that any
such Person has the right to acquire within one year) directly or indirectly,
of more than 50% of the Voting Stock of the Company or any successor company
thereto, including, without limitation, through a merger or consolidation or
purchase of Voting Stock of the Company;

6

 

	 	 	 	provided that none of the Permitted Holders or their Related Parties have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board; provided further that the
transfer of 100% of the Voting Stock of the Company to a Person that has
an ownership structure identical to that of the Company prior to such
transfer, such that the Company becomes a wholly owned Subsidiary of such
Person, shall not be treated as a Change of Control;
	 
	 	(ii)	 	after an initial public offering of Capital Stock of the
Company during any period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board, together with any new
directors whose election by such Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board then in office;
	 
	 	(iii)	 	the sale, lease, transfer, conveyance or other disposition,
in one or a series of related transactions other than a merger or
consolidation, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any Person or group of related Persons
other than a Permitted Holder or a Related Party of a Permitted Holder; or
	 
	 	(iv)	 	the adoption of a plan relating to the liquidation or
dissolution of the Company.

	 	(e)	 	“Claire’s Investors Liquidity Event” means any transaction (including,
without limitation, a stock sale, redemption or buy back, merger, consolidation or
otherwise) immediately following which all of the Shares held by all Claire’s
Investors have been exchanged for or converted into consideration, all or
substantially all of which consists of cash or readily marketable securities that the
Claire’s Investors can immediately resell for cash at prevailing quoted prices without
legal, contractual or market restrictions.
	 
	 	(f)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended.
	 
	 	(g)	 	“Investor Sale” means of sale of Shares by a Claire’s Investor in connection
with or following a Qualified Public Offering.
	 
	 	(h)	 	“Investor Percentage” means the percentage derived by dividing (i) the number
of Shares of Common Stock held by all Claire’s Investors immediately following the
applicable Investor Sale, by (ii) the number of

7

 

	 	 	 	Shares held by all Claire’s Investors as of the date hereof (subject to adjustment
for stock splits etc.).
	 
	 	(i)	 	“Fully Diluted Shares” means, on any Measurement Date, the number of Shares
outstanding, plus the number of Shares subject to all outstanding options, warrants
and rights to acquire Shares, whether or not exercisable.
	 
	 	(j)	 	“Measurement Date” means (1) prior to a Qualified IPO, the last day of any
fiscal quarter, starting with the last day of the eighth full fiscal quarter after May
29, 2007, (2) following a Qualified IPO, each trading day, starting with the 90th
trading day following the Qualified IPO, or (3) the date of a Claire’s Investors
Liquidity Event, whether before or after a Qualified IPO.
	 
	 	(k)	 	“Net Equity Value” means (1) 8.5 multiplied by the Company’s consolidated
earnings, before interest, income taxes, depreciation and amortization (“EBITDA”) for
the four fiscal quarters ending upon a Measurement Date, plus (2) the sum of cash,
cash equivalents, and the aggregate exercise price of all outstanding options or
warrants to purchase Shares, whether or not exercisable, in each case as of the
Measurement Date, less (3) all debt and capital leases outstanding as of the
Measurement Date. EBITDA, cash and debt shall be determined by the Committee based on
the Company’s financial statements for such period, subject to such adjustments to
reflect unusual, nonrecurring or extraordinary events as the Committee shall deem
equitable and appropriate.
	 
	 	(l)	 	“Permitted Holder” means Apollo.
	 
	 	(m)	 	“Preferred Stock” as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes, however designated, that is preferred as to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation, over shares of Capital
Stock of any other class of such corporation.
	 
	 	(n)	 	“Related Party” means:

	 	(i)	 	any controlling stockholder, 50% (or more) owned Subsidiary,
or immediate family member (in the case of an individual) of any Permitted
Holder; or
	 
	 	(ii)	 	any trust, corporation, partnership, limited liability
company or other entity, the beneficiaries, stockholders, partners, members,
owners or Persons beneficially holding an 50% or more controlling interest of
which consist of any one or more Permitted Holders and/or such other Persons
referred to in the immediately preceding clause (1).

8

 

	 	(o)	 	“Stretch Target Stock Price” means $10.00, accumulated at an effective annual
rate of 32% from May 29, 2007 to the Measurement Date, provided that the Committee
shall make such adjustment to the Stretch Target Stock Price as it reasonably
determines is equitable and appropriate to reflect changes to the outstanding Shares
or capital structure of the Company, including contributions and distributions of
capital.
	 
	 	(p)	 	“Subsidiary” means, with respect to any specified Person:

	 	(i)	 	any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency and after giving
effect to any voting agreement or stockholders’ agreement that effectively
transfers voting power) to vote in the election of directors, managers or
trustees of the corporation, association or other business entity is at the
time owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person (or a combination thereof); and
	 
	 	(ii)	 	any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).

	 	(q)	 	“Target Stock Price” means $10.00, accumulated at an effective annual rate of
22.5% from May 29, 2007 to the Measurement Date, provided that the Committee shall
make such adjustment to the Target Stock Price as it determines is equitable and
appropriate to reflect changes to the outstanding Shares or capital structure of the
Company, including contributions and distributions of capital.
	 
	 	(r)	 	“Value Per Share” means (1) prior to a Qualified IPO, the Net Equity Value
divided by the Fully Diluted Shares, (2) following a Qualified IPO, the average
closing price of a Share for the period of 90 consecutive trading days ending on the
Measurement Date, or (3) upon a Claire’s Investors Liquidity Event, the price per
Share realized by the Claire’s Investors.
	 
	 	(s)	 	“Voting Stock” of an entity means all classes of Capital Stock of such entity
then outstanding and normally entitled to vote in the election of directors or all
interests in such entity with the ability to control the management or actions of such
entity.

	8.	 	Federal Taxes: The Options granted to you are treated as “nonqualified options” for
federal tax purposes, which means that when you exercise, the excess of the

9

 

	 	 	value of the Shares issued on exercise over the exercise price paid for the Shares is
income to you, subject to wage-based withholding and reporting. When you sell the Shares
acquired upon exercise, the excess (or shortfall) between the amount you receive upon the
sale and the value of the shares at the time of exercise is treated as capital gain (or
loss). State and local taxes may also apply. You should consult your personal tax advisor
for more information concerning the tax treatment of your Options. The Company is not
making any representations concerning the tax treatment of the Options, and is not
responsible for any taxes, interest or penalties you incur in connection with your Options,
even if the taxing authorities successfully challenge any position taken by the Company in
respect of wage withholding and reporting or otherwise.

We are excited to give you this opportunity to share in our future success. Please indicate your
acceptance of this option grant and the terms of the Plan by signing and returning a copy of this
letter.

Sincerely,

CLAIRE’S INC.

	 	 	 	 	 
	 	 
	By:  	
 	 
	 	Name:  	Eugene S. Kahn 	 
	 	Title:  	Chief Executive Officer

	 
	Agreed to and Accepted by:

 

	 

10

 

	 	 	 	 	 

EXHIBIT C

CLAIRE’S INC.

2400 W. Central Rd.

Hoffman Estates, IL 60192

December 13, 2007

James Conroy

2771 NE 57th Court

Fort Lauderdale, FL 33308

Dear James:

We are pleased to inform you that you have been awarded the opportunity to purchase shares of
common stock of Claire’s Inc. (the “Company”), the parent company of Claire’s Stores, Inc., and to
receive a matching stock award grant on a buy one, get one (“BOGO”) basis, in each case on the
terms described below. This opportunity is being made available to you pursuant to the Company’s
Stock Incentive Plan (the “Plan”), a copy of which is attached as Exhibit A, and the Shares you
purchase (the “Purchased Shares”), the matching option grant (the “BOGO Option”), and any Shares
acquired upon exercise of the BOGO Option (the “BOGO Shares”) are subject in all respects to the
provisions of the Plan, except as specifically modified hereby. Capitalized terms not otherwise
defined in the text are defined in the Plan.

	 	1.	 	Opportunity to Purchase Shares. You may purchase Shares at a price per
Share of $10.00. You must purchase Shares in increments of 1,000, and the number of
Shares you may purchase is limited to 30,000 shares.
	 
	 	2.	 	Grant of Matching Option: On the date that you complete the purchase of
Shares described in paragraph 1 above, you will be granted a BOGO Option relating to the
same number of Shares that you purchase under paragraph 1 above at an exercise price per
Share of $10.00. The BOGO Option will be immediately exercisable from the date it is
granted until the date it expires or otherwise terminates pursuant to Section 4 of the
your Option Grant Letter dated December [   ], 2007.
	 
	 	3.	 	Rights/Restrictions on Shares. The Purchased Shares and the BOGO Shares
are subject to the rights and restrictions set forth in Section 8 of the Plan, provided
that in addition to the Company’s rights under Section 8(d) of the Plan (Repurchase
Right), if you voluntarily resign from employment with the Company and its Affiliates
prior to the earlier of December [], 2011 or the date of a Qualified IPO, then the price
per Share to be paid by the Company for any BOGO Shares it chooses to repurchase under
Section 8(d) of the Plan shall not exceed the price per Share paid by you upon exercise
of the BOGO Option, less any distributions paid in respect of such Share.

11

 

	 	4.	 	Representations. By accepting this opportunity to purchase Shares and receive an
option award, you represent to the following, and understand that the Company would not
have made this opportunity available to you but for your representations and
acknowledgements below.

	 	(a)	 	Shares Unregistered; Investor Knowledge. You acknowledge and agree
that (i) neither the opportunity to purchase Shares, the grant of the BOGO Option nor
the offer to acquire Shares upon exercise thereof has been registered under applicable
securities laws; (ii) there is no established market for the Shares and it is not
anticipated that there will be any such market for the Shares in the foreseeable
future; and (iii) your knowledge and experience in financial and business matters are
such that you are capable of evaluating the merits and risks of any investment in the
Shares.
	 
	 	(b)	 	Acknowledgement. You acknowledge and agree that: (i) this award is a
one-time benefit, which does not create any contractual or other right to receive
future awards, or benefits in lieu of awards; (ii) all determinations with respect to
any such future awards, including, but not limited to, the times when awards shall be
granted, the number of shares subject to each award, the exercise or purchase price,
and the time or times when each award shall vest, will be at the sole discretion of
the Company; (iii) this award is not part of normal or expected compensation for
purposes of calculating any severance, resignation, redundancy, end of service
payments, bonuses, long-service awards, pension or retirement benefits or similar
payments; and (iv) THAT THIS AWARD SHALL NOT CREATE A RIGHT TO FURTHER EMPLOYMENT WITH
THE COMPANY OR ITS AFFILIATES AND SHALL NOT INTERFERE WITH THE ABILITY OF THE COMPANY
OR ITS AFFILIATES TO TERMINATE YOUR EMPLOYMENT RELATIONSHIP AT ANY TIME, AND UPON
TERMINATION OF YOUR EMPLOYMENT FOR ANY REASON WHATSOEVER, ANY RIGHTS IN RESPECT OF THE
PURCHASED SHARES, THE BOGO OPTION OR THE UNDERLYING SHARES TO WHICH YOU WOULD HAVE
BEEN ENTITLED HAD YOUR EMPLOYMENT NOT TERMINATED SHALL LAPSE UPON THE DATE OF
TERMINATION UNLESS EXPRESSLY STATED OTHERWISE HEREIN OR THE PLAN, AND YOU SHALL NOT BE
ENTITLED TO ANY COMPENSATION IN RESPECT OF LOSS OF ALL OR ANY OF THE PURCHASED SHARES,
THE BOGO OPTION OR UNDERLYING SHARES.
	 
	 	(c)	 	Employee Data Privacy. You consent to the collection, use and
transfer of personal data as described in this paragraph 4(c). You understand that
the Company and its Affiliates hold certain personal information about you including,
but not limited to, your name, home address and telephone number, date of birth,
social security number, salary, nationality, job title, common shares or directorships
held in the Company, details of all other entitlement to common shares awarded,
cancelled, exercised, vested,

12

 

	 	 	 	unvested or outstanding in your favor, for the purpose of managing and
administering this award (“Data”). You further understand that the Company and/or
its Affiliates will transfer Data among themselves as necessary for the purposes of
implementation, administration and management of this award, and that the Company
and/or any of its Affiliates may each further transfer Data to any third parties
assisting the Company in such implementation, administration and management. You
authorize them to receive, possess, use, retain and transfer Data in electronic or
other form, for the purposes of implementing, administering and managing this
award, including any requisite transfer of such Data as may be required for the
administration of this award and/or the subsequent holding common shares on your
behalf to a broker or other third party with whom the shares acquired on exercise
may be deposited. You understand that he or she may, at any time, view the Data,
require any necessary amendments to it or withdraw the consent herein in writing by
contacting the local human resources representative.
	 
	 	(d)	 	Confidentiality. You agree not to disclose or discuss in any way the
terms of this award to or with anyone other than members of your immediate family, or
your personal counsel or financial advisors (and you will advise such persons of the
confidential nature of this offer).

	 	5.	 	Federal Taxes: The BOGO Option is treated as a “nonqualified option” for
federal tax purposes, which generally means that when you exercise, the excess of the
value of the Shares issued on exercise over the exercise price paid for the Shares is
income to you, subject to wage-based withholding and reporting. However, if you exercise
the BOGO Option prior to the earlier of December [], 2011 or the date of a Qualified IPO,
unless you make a “section 83(b) election” within 30 days of exercise, taxes will be
deferred until the earlier of December [], 2011 or the date of a Qualified IPO, at which
time the value of the Shares at such time over the exercise price paid is income to you,
subject to wage-based withholding and reporting. When you sell your Purchased Shares, or
your BOGO Shares (assuming an 83(b) election, if applicable, was made), the excess (or
shortfall) between the amount you receive upon the sale and the value of the shares at
the time you acquired them is treated as capital gain (or loss). State and local taxes
may also apply. You should consult your personal tax advisor for more information
concerning the tax treatment of your Purchased Shares, BOGO Option and BOGO Shares. The
Company is not making any representations concerning tax consequences, and is not
responsible for any taxes, interest or penalties you incur in connection with your Shares
or BOGO Option, even if the taxing authorities successfully challenge any position taken
by the Company in respect of wage withholding and reporting or otherwise.
	 
	 	6.	 	Acceptance. In order to accept this offer to purchase Shares, you must
countersign below, indicate the number of Shares you desire to purchase in the space
indicated immediately above your signature. Return the countersigned

13

 

	 	 	 	copy of this letter, along with a check for the purchase price to Joe DeFalco.

We are excited to give you this opportunity to share in our future success. Please contact Joe
DeFalco should you have any questions.

Sincerely,

CLAIRE’S INC.

	 	 	 	 	 
	 	 
	By:  	
 	 
	 	Name:  	Eugene S. Kahn 	 
	 	Title:  	Chief Executive Officer 	 
	 
	Agreed to and Accepted as to ___ Shares by:

 

	 

14

 

Exhibit D

FORM OF RELEASE

          I, James Conroy, the undersigned, agree to accept the compensation, payments, benefits and
other consideration provided for in Section 4.3(c) of the employment agreement between me and by
and between Claire’s Stores, Inc. (the “Company”) dated as of December 13, 2007 (the “Employment
Agreement”) in full resolution and satisfaction of, and hereby IRREVOCABLY AND UNCONDITIONALLY
RELEASE, REMISE AND FOREVER DISCHARGE the Company and Releasees from any and all agreements,
promises, liabilities, claims, demands, rights and entitlements of any kind whatsoever, in law or
equity, whether known or unknown, asserted or unasserted, fixed or contingent, apparent or
concealed, to the maximum extent permitted by law (“Claims”), which I, my heirs, executors,
administrators, successors or assigns ever had, now have or hereafter can, shall or may have for,
upon, or by reason of any matter, cause or thing whatsoever existing, arising, occurring or
relating to my employment and/or termination thereof with the Company and Releasees, or my status
as a stockholder of the Company and Releasees, at any time on or prior to the date I execute this
Release, including, without limitation, any and all Claims arising out of or relating to
compensation, benefits, any and all contract claims, tort claims, fraud claims, claims for bonuses,
commissions, sales credits, etc., defamation, disparagement, or other personal injury claims,
claims for accrued vacation pay, claims under any federal, state or municipal wage payment,
discrimination or fair employment practices law, statute or regulation, and claims for costs,
expenses and attorneys’ fees with respect thereto. This release and waiver includes, without
limitation, any and all rights and claims under Title VII of the Civil Rights Act of 1964, the
Civil Rights Acts of 1866, 1871 and 1991, the Employee Retirement Income Security Act, the Age
Discrimination in Employment Act (including but not limited to the Older Workers Benefit Protection
Act), the Americans with Disabilities Act, the National Labor Relations Act, the Family and Medical
Leave Act, the Equal Pay Act, the Sarbanes-Oxley Act, [add applicable state laws] and all
amendments to the foregoing, and any other federal, state or local statute, ordinance, regulation
or constitutional provision regarding employment, compensation, employee benefits, termination of
employment or discrimination in employment. Notwithstanding the above, I do not release my right
to any right to indemnification I may have as a director, officer or employee pursuant to
applicable law and/or the Company’s certificate of incorporation nor do I release any rights to any
earned and vested benefits to which I am entitled under the terms of any employee benefit plan
maintained by the Company or any of its subsidiaries.

          I represent and affirm (i) that I have not filed any Claim against the Company or Releasees
and (ii) that to the best of my knowledge and belief, there are no outstanding Claims.

          For the purpose of implementing a full and complete release and discharge of Claims, I
expressly acknowledge that this Release is intended to include in its effect, without limitation,
all the Claims described in the preceding paragraphs, whether known

15

 

or unknown, apparent or concealed, and that this Release contemplates the extinction of all
such Claims, including Claims for attorney’s fees. I expressly waive any right to assert after the
execution of this Release that any such Claim has, through ignorance or oversight, been omitted
from the scope of the Release.

          For purposes of this Release, the term “the Company and Releasees” includes the Company and
its past, present and future direct and indirect parents, subsidiaries, affiliates, divisions,
predecessors, successors, and assigns, and their past, present and future officers, directors,
shareholders, representatives, agents, attorneys and employees, in their official and individual
capacities, and all other related individuals and entities, jointly and individually, and this
Release shall inure to the benefit of and shall be binding and enforceable by all such entities and
individuals.

          I understand that I have a period of up to 21 days from my receipt of this Release to review
and consider this Release. I further understand that once I have signed this Release, I may
revoke it at any time during the 7 days following its execution by delivering a written notice of
revocation to the Company, attention General Counsel. I further understand that if I fail to
execute and return this Release to the Company, attention General Counsel, prior to the expiration
of such 21 day period, or revoke my execution of the Release during such 7 day period, I will not
be entitled to the compensation, payments, benefits and other consideration provided for in Section
4.3(c) of the Employment Agreement.

I ACKNOWLEDGE THAT I HAVE READ THIS

RELEASE AND I UNDERSTAND

AND ACCEPT ITS TERMS

	 	 	 
	______________________________

	 	___________________________
	James Conroy

	 	Date

Sworn to before me this

______day of _________, 20 ___

______________________________

Notary Public

16

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