Document:

Exhibit 10.1

 

EMPLOYMENT
AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated January 21,
2008, but effective as of December 20, 2007 (the “Effective Date”), is by
and between ZALE CORPORATION, a Delaware corporation (the “Company”), and NEAL
GOLDBERG (“Executive”).

 

WHEREAS Executive and Company desire to enter
into an employment agreement which sets forth the terms and conditions for
Executive’s continued employment with the Company;

 

NOW, THEREFORE, in consideration of the
foregoing recital and 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;
Term.  (a)  Executive agrees to
enter in the employment of the Company, and the Company agrees to employ
Executive, on the terms and conditions set forth in this Agreement.  The term of Executive’s employment under this
Agreement commenced on the Effective Date and, subject to its earlier
termination as provided in Section 4, will continue through December 19,
2010 (the “Initial Term”), provided that on each anniversary of the Effective
Date, the term of Executive’s employment shall automatically be extended for an
additional one-year period (collectively with the Initial Term, the “Term”)
unless at least ninety (90) days prior to the anniversary date either party
provides written notice of termination to the other party.

 

2.  Position;
Duties.  During the Term, Executive
will serve as the President and Chief Executive Officer of the Company and his
duties will be those designated from time to time by the Board of Directors of
the Company (the “Board”).  In addition,
the Board shall use its reasonable best efforts to nominate Executive for
election as a director of the Company each year during the Term.  Executive agrees during the Term to devote
his full time, efforts, skills and abilities to the performance of his duties
as described herein and to the furtherance of the Company’s business.  As consideration for this Agreement and
specifically in consideration for the promises described in Section 9, the
Company promises to provide Executive with confidential and proprietary
information and trade secrets, the receipt and sufficiency of which Executive
acknowledges, including, without limitation, Trade Secrets (as defined below)
belonging to the Company for use in the performance of Executive’s duties for
the Company.  Executive will report
directly to the Board.  At the request of
the Board, Executive further agrees to serve, without additional compensation,
as an officer, director or both of any subsidiary, division or affiliate of the
Company or any other entity in which the Company holds a controlling equity
interest, provided, however, that (i) the Company shall indemnify 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 (ii) such service
shall not

 

 

materially detract
from the responsibilities of Executive to the Company as set forth herein or
his ability to perform such responsibilities.

 

3.  Compensation.

 

(a)  Base Salary.  During the Term, the Company will pay to
Executive an annual base salary of not less than $925,000 (“Base Salary”),
which will be payable in arrears in accordance with the Company’s normal
payroll procedures in the amount of $35,576.92 per bi-weekly pay period, and
will be reviewed annually by the Board and will be subject to increases at the
discretion of the Board or an authorized committee or representative
thereof.  After any such increase, the
term “Base Salary” as utilized in this Agreement will thereafter refer to the
adjusted amount.

 

(b)  Sign-On Bonus.

 

(i) 
The Company will pay to the Executive a sign-on cash bonus of eight hundred
thousand dollars ($800,000) (the “Relocation and Signing Bonus”), payable
within 30 days of the Effective Date.  If
the Executive’s employment with the Company is terminated for any reason prior
to the first anniversary of the Effective Date, the Executive will repay the
Relocation and Signing Bonus in accordance with the Company’s standard sign-on
bonus agreement.

 

(ii) 
The Company will grant to the Executive on the Effective Date (A) an option
to purchase three hundred thousand (300,000) shares of Company common stock
(the “Common Stock”) with an exercise price equal to the fair market value of
the Common Stock at the close of market on the Effective Date, which shall vest
over four years at a rate of 25% of the stock subject thereto on each
anniversary of the Effective Date; and (B) two hundred fifty thousand
(250,000) restricted stock units, which shall vest over three years at a rate
of 33.33% of the units awarded herein on each anniversary of the Effective Date
(collectively, the “Sign-on Equity Grants”). 
Subject to the provisions of this subsection, the Sign-on Equity Grants
shall be governed by and shall be subject to the rules of the equity and
other long-term incentive programs of the Company under which such grants are
authorized, and of the award agreements pursuant to which such grants are made.

 

(c)  Incentive Bonus.  During the Term, Executive will be eligible
to receive an annual incentive bonus as determined under the Company’s Annual
Bonus Program (as may be amended from time to time) established by the
Board.  The annual incentive bonus for
Executive will be not less than 125% of Executive’s Base Salary (the “Target
Bonus”) and the maximum annual incentive bonus will be 200% of Executive’s Base
Salary, based on achievement of financial goals as agreed to in writing by the
Board.  Notwithstanding the foregoing,
Executive’s annual incentive bonus for (i) the period beginning on the
Effective Date and ending on June 19, 2008 (“Period 1”) shall be no less
than the greater of (A) 50% of the Target Bonus or (B) the actual
annual incentive 

 

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bonus earned for Period 1; and (ii) the period beginning on June 20,
2008 and ending on December 19, 2008 (“Period 2”) shall be no less than
the greater of (A) 50% of the Target Bonus, or (B) the actual annual
incentive bonus earned for Period 2 (each, a “Guaranteed Bonus”).  Executive shall be paid the Guaranteed
Bonuses as follows: (1) 50% of the Target Bonus for Period 1 shall be paid
no later than 30 days following June 20, 2008; and (2) an amount
equal to the excess of (I) the Guaranteed Bonuses over (II) the
amount paid pursuant to Clause (1) of this sentence shall be paid as soon
as administratively possible following December 19, 2008 but in no event
later than March 15, 2009.  For the
period beginning on December 20, 2008 and ending on July 31, 2009 (“Period
3”), Executive will be eligible for a pro-rata portion of any earned bonus for
fiscal year 2009 corresponding to Period 3. 
Except as otherwise specifically provided in this Section 3(c), the
annual incentive bonus will be paid to Executive in accordance with the terms
and conditions of the Annual Bonus Program.

 

(d)  Other Equity and Long-Term
Incentive Awards.  In addition to all
previous grants of restricted stock units and stock options, Executive will be
entitled to participate in equity and other long-term incentive award programs
of the Company, including, without limitation, the Equity Plan, on a basis
generally consistent with that of other senior-level executives.

 

(e)  Vacation.  Executive will be entitled to at least four (4) paid
weeks (160 hours) of vacation per year during each fiscal year of the Term of
this Agreement.

 

(f)  Executive Perquisites; Benefit;
Expenses.

 

(i) 
Executive will be entitled to receive executive perquisites and fringe and
other benefits on a basis which is no less favorable than the basis on which
such perquisites and benefits are provided to any other senior executive
(including for this purpose, to the extent applicable, executive’s family)
under any of the Company’s plans, policies, arrangements or programs in effect
from time to time (including but not limited to (A) coverage under the
Company’s medical plans, (B) the provision of executive life insurance at
two times the Executive’s Base Salary, (C) participation in the Company’s
401(k) Savings and Investment Plan after one year of qualifying service,
and (D) the provision of executive long-term disability insurance).

 

(ii) 
The Company will reimburse Executive for such reasonable and necessary
out-of-pocket business expenses as may be incurred by him in the performance of
his duties hereunder during the Term upon presentation of itemized expense statements
and such other supporting information as may be required by the Company.  In addition, the Company will reimburse
Executive for, or at Executive’s request pay directly on Executive’s behalf,
the legal fees and other expenses incurred by him in connection with the
negotiation and drafting of this Agreement in an amount not to exceed $25,000
upon production of receipts and/or invoices to the reasonable satisfaction of
the Board, and the Company 

 

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shall pay to Executive tax
gross-up payments so that the net amount retained by Executive after payment of
all applicable income and employment taxes is equal to the agreed amount to be
reimbursed for such legal fees and expenses, provided, however, that a gross up
payment shall not be made with respect to any reimbursement to the extent the
related expense is deductible or is otherwise excludable from Executive’s
taxable income.  To the extent any such
reimbursements are taxable to Executive (or any legal fees and expenses
referred to in the second sentence of this paragraph), the amount of any such
expenses eligible for reimbursement during any calendar year will not affect
the amount of any such expenses eligible for reimbursement in any other
calendar year, and any such expenses will be reimbursed no later than the last
day of the calendar year following the calendar year in which such expenses are
incurred.

 

(iii) 
Any amounts that Executive becomes entitled to receive in respect of taxes
pursuant to this Section 3(f) shall be paid to Executive (or to the
applicable tax authority on Executive’s behalf) not later than the last day of
the calendar year in the same the calendar year in which Executive remits the
underlying taxes to the applicable taxing authority.

 

(g)  Tax Withholding.  The Company has the right to deduct from any
compensation payable to Executive under this Agreement social security
(FICA) taxes and all Federal, state and local income taxes and charges as
are required by applicable law and regulations.

 

4.  Termination.  Subject to the provisions of Section 5
hereof, the Term will terminate as specified in Section 1(b) or, if
earlier, upon Executive’s termination of employment with the Company as
follows:

 

(a)  Death.  Executive’s employment shall terminate upon
the death of Executive.

 

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

 

(i) 
Executive’s indictment for a felony or a crime involving moral turpitude;

 

(ii) 
Executive’s commission of an act constituting fraud, deceit, or material
misrepresentation with respect to the Company;

 

(iii) 
Executive’s recurrent use of alcohol or prescribed medications at work or
otherwise such that Executive’s job performance is impaired or the use of any
illegal substances or drug such that, in the Company’s sole discretion,
Executive’s job performance is impaired;

 

4

 

 

(iv) 
Executive’s embezzlement of Company assets or funds; or

 

(v) 
Executive commits any negligent or willful act or omission that causes material
detriment (by reason, without limitation, of financial exposure or loss, damage
to reputation or goodwill, or exposure to civil damages or criminal penalties
or other prosecutorial action by any governmental authority) to the Company or
any parent or subsidiary corporation thereof.

 

(c)  Termination Without Cause.  The Company may terminate Executive’s
employment at any time for any reason other than for Cause in a termination
that constitutes a “separation from service” for purposes of Section 409A
of the Code by delivering a written termination notice to Executive.

 

(d)  Termination by Executive For a
Termination Reason.  Executive may
terminate his employment with the Company at any time for a Termination Reason
(as hereinafter defined) by delivering a written termination notice to the
Company.  For purposes of this Agreement,
“Termination Reason” shall mean any of the following:

 

(i) 
a material reduction by the Company in Executive’s Base Salary or bonus
eligibility unless such reduction has been agreed to in writing by Executive;

 

(ii) 
the Company’s principal executive offices shall be moved to a location which is
more than 50 miles outside of the Dallas/Fort Worth, Texas Metroplex area; or

 

(iii) 
the assignment to Executive by the Company of duties materially inconsistent
with, or the material reduction of the powers and functions associated with,
Executive’s positions, duties, responsibilities and status with the Company or
a material adverse change in Executive’s titles or offices, or he no longer
reports to the Board, unless such action is in lieu of termination by the
Company of Executive’s employment for Executive’s Disability pursuant to Section 4(f).

 

If Executive believes that
an event specified in this Section 4(d) has occurred, Executive must
notify the Company of that belief within ninety (90) days following the
occurrence of such event.  The Company
will have thirty (30) days following receipt of such notice (such period,
the “Termination Reason Designated Period”) in which to either rectify such
event, determine that such an event exists, or determine that such an event
does not exist.  If the Company does not
take any of the foregoing actions within the Termination Reason Designated
Period, Executive may terminate his employment with the Company during the
fourteen-day period following the expiration of the Termination Reason
Designated Period.  If, during the
Termination Reason Designated Period, the Company determines that such an event
exists, the Company shall either 

 

5

 

(A) undertake to cure
such event during the Termination Reason Designated Period and provide
Executive with written notice during the Termination Reason Designated Period
of the Company’s determination that such event has been cured, or (B) provide
written notice to Executive during the Termination Reason Designated Period that
it does not wish to cure such event, in which case Executive may terminate his
employment during the fourteen (14) day period following receipt of the notice
specified in this clause (B).  If,
during the Termination Reason Designated Period, the Company determines that (1) such
event does not exist or (2) the Company has cured such event pursuant to
clause (A) of the preceding sentence, then (x) Executive will
not be entitled to rely on or assert such event as a Termination Reason, and (y) if
Executive disagrees with the Company’s determination, Executive may file a
claim pursuant to Section 15 within thirty (30) days after Executive’s
receipt of written notice of the Company’s determination.

 

(e)  Termination by Executive Without
a Termination Reason.  Executive may
terminate his employment with the Company without a Termination Reason upon
thirty (30) days’ prior written notice to the Company.  In such instance, the Company may accelerate
the effective date of such termination, but Executive shall receive all
compensation and benefits under this Agreement, payable in accordance with the
Company’s normal payroll procedures, for the full thirty (30) day notice
period.

 

(f)  Termination Following Disability.  In the event that, in the Company’s sole
discretion, Executive becomes unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months (a “Disability Event”), the
Company may terminate Executive’s employment under this Agreement by delivering
a written termination notice to Executive.

 

(g)  Payments/Deductions.  Following any expiration or termination of
the Term, and in addition to any amounts owed pursuant to Section 5
hereof, the Company shall pay Executive all amounts earned by Executive
hereunder up to the date of such expiration or termination.  Any such amounts paid in respect of earned
but unpaid Base Salary or vacation shall be paid as part of Executive’s final
ordinary payroll payment from the Company for active employment or
contemporaneously with such payment, but in no event later than thirty (30)
days after such expiration or termination of the Term, and any other such amounts
shall be paid in accordance with the terms of the plan, policy, agreement or
arrangement under which they arose (including with respect to time of payment
or distribution).  Subject to Section 7(e),
Executive agrees that any advances to Executive by the Company outstanding at
the time of the expiration or termination of the Term 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 Executive’s adherence to the terms of this Agreement,
including but not limited to the non-competition, no-hire/non-solicitation,
non-disclosure and non-disparagement provisions 

 

6

 

set forth in Sections 9, 10, 11 and 12 (subject to Section 7(e)),
Executive shall be entitled to receive the following benefits in the event his
employment is terminated pursuant to Section 4 above or the Company
terminates Executive’s employment in connection with its election not to renew
this Agreement for an additional Term as specified in Section 1(b):

 

(a)  Death.  In the event that 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 and at times consistent
with its normal payroll procedures, the Base Salary to Executive’s estate for a
period of twelve (12) months commencing on the first ordinary payroll date
that follows the date that is 60 days after the date of Executive’s death.  All unvested restricted stock or units
granted to Executive will be immediately forfeited and all unvested stock
options granted to Executive will be immediately terminated upon the date of
Executive’s death and any vested stock options will remain exercisable for one (1) year
after Executive’s date of death, subject to the earlier expiration of the term
of such stock option.  For purposes of
this Section 5(a) and elsewhere in this Agreement, Stock Appreciation
Rights shall be treated in the same manner as stock options.

 

(b)  Termination for Cause.  In the event that Executive’s employment is
terminated by the Company for Cause as provided in Section 4(b) Executive
shall not thereafter be entitled to any further compensation from the Company
and all outstanding stock options, whether or not vested, and unvested
restricted stock and units shall be immediately forfeited.

 

(c)  Termination By Non-Renewal,
Without Cause or By Executive For a Termination Reason.  In the event that the Company terminates
Executive’s employment (i) in connection with the Company’s election of
non-renewal of the Term as provided in Section 1(b) or without Cause
as provided in Section 4(c) or Executive terminates his employment
for a Termination Reason as provided in Section 4(d), and (ii) the termination
constitutes a “separation from service” for purposes of Section 409A of
the Code, then Executive shall be entitled to the following:

 

(i) 
Severance.  The Company shall pay
to Executive (or Executive’s estate if Executive dies after termination) an
amount equal to the sum of two (2) times Executive’s annual Base Salary as
of the date of termination and two (2) times the average of the annual
incentive bonus amount earned by Executive with respect to the three fiscal
year period preceding the year in which this Agreement is terminated (or such
shorter period as may apply if this Agreement has been in effect for less than
three years) (hereinafter, the “Severance Amount”); provided, however, that for
purposes of this calculation, the Relocation and Signing Bonus and the
Guaranteed Bonus payable for Period 1 and for Period 2 shall not be utilized
and the actual bonus that would have been earned for such time periods shall be
utilized instead.  The Severance Amount
shall be payable in equal installments in accordance with and at times
consistent with the Company’s ordinary payroll practices, over a twenty-four
(24) month 

 

7

 

period (hereinafter, the “Severance
Period”) commencing on the first ordinary payroll payment date that follows the
date that is 60 days after the date of termination of Executive’s employment.

 

(ii) 
Benefits.  For the duration of the
Severance Period (i.e., twenty-four (24) months) commencing on the date of
termination of Executive’s employment, Executive shall continue to receive the
fringe and other benefits provided under Section 3(f)(i) hereof on
the same basis as such benefits were provided during Executive’s employment
hereunder, provided that the continued participation of 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.  Such period of coverage shall
count against Executive’s continuation of coverage period required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).  All premium payments paid by Executive for
such continuation coverage during the Severance Period and for any subsequent
COBRA period shall be paid directly to the appropriate insurer or service
provider for such benefit (which may be the Company).  If Executive’s participation in any such plan
is barred or would result in adverse tax consequences to Executive or the
Company, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under such plan or, alternatively at the option of the
Company, reimburse Executive for the reasonable actual costs of purchasing in the
marketplace substantially similar benefits; provided, however, that in either
case 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 Executive was required to pay to maintain such benefits
prior to the date of termination of employment.   Except as
permitted by Section 409A of the Code, the continued benefits provided to
Executive pursuant to this Section 5(c)(ii) during any calendar year
will not affect the continued benefits provided to Executive in any other
calendar year, and the amount of any costs of purchasing benefits reimbursed
pursuant to this Section 5(c)(ii) shall be paid to Executive no later
than the last day of the calendar year following the calendar year in which
such costs are incurred by Executive.

 

(iii) 
Equity and Long-Term Incentive Awards. 
All unvested restricted stock or units granted to Executive will be
immediately forfeited and all unvested stock options granted to Executive will
be immediately terminated upon such termination of Executive’s employment and
any vested stock options granted to Executive will remain exercisable for three
months after such termination of Executive’s employment, subject to the earlier
expiration of the term of such stock option.

 

(iv) 
Offset.  Any benefits received by
or available to Executive in connection with any other employment or
consultancy that are reasonably 

 

8

 

comparable to the 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 benefits then being provided by the
Company pursuant to Section 5(c)(ii) hereof.

 

(d)  Termination by Executive Without
a Termination Reason.  In the event
that Executive’s employment is terminated by Executive without a Termination
Reason as provided in Section 4(e), Executive shall receive all payments
due under Section 4(g) as of the termination date and thereafter
shall not be entitled to any further compensation from the Company and all
outstanding unvested stock options and all unvested restricted stock and units
shall be immediately forfeited.

 

(e)  Disability.  In the event that Executive’s employment is
terminated due to a Disability Event as provided in Section 4(f),
Executive shall be entitled to continue to receive his Base Salary for a period
of twelve (12) months, commencing on the first ordinary payroll date that
follows the date that is 60 days after the date of termination of Executive’s
employment, and payable in accordance with and at times consistent with the
Company’s ordinary payroll practices.  In
addition, Executive shall be entitled to continue to receive the fringe and
other benefits provided under Section 3(f)(i) hereof for a period of
12 months, commencing on the date of termination of Executive’s employment,
subject to the conditions regarding such benefits specified in Section 5(c)(ii) and
5(c)(iv).  All unvested restricted stock
or units granted to Executive will be immediately forfeited and all unvested
stock options granted to Executive will be immediately terminated upon the date
of such termination of Executive’s employment and any vested stock options will
remain exercisable for one (1) year after such termination of Executive’s
employment, subject to the earlier expiration of the term of such stock option.

 

6.  Effect
of Change of Control. (a)  If within two (2) years following a
Change of Control (as hereinafter defined), Executive terminates his employment
with the Company for Good Reason (as hereinafter defined) or the Company
terminates Executive’s employment for any reason other than for Cause (as
defined in Section 4(b)) in a termination that constitutes a “separation
from service” for purposes of Section 409A of the Code, or a Disability
Event, the Company shall pay to, and provide for, Executive the following
payments and benefits:

 

(i) 
An amount equal to three (3) times the sum of (A) the Executive’s
annual Base Salary as of the date of termination and (B) the average
annual incentive bonus paid to Executive over the prior three years (or such
shorter period as may apply if this Agreement has been in effect for less than three
years) as of the date of termination, payable in a single lump sum within
fifteen (15) days after the date on which the general release required pursuant
to Section 8 is executed and delivered to the Company and becomes
irrevocable in accordance with its terms, provided, however, that for purposes
of the calculation of clause (B), the 

 

9

 

Relocation and Signing Bonus
shall not be utilized and the Guaranteed Bonus payable for Period 1 and for
Period 2 shall be utilized;

 

(ii) 
All benefits under the Company’s various benefit plans, including group
healthcare, dental, and life, for thirty-six (36) months from the date of
termination, on the same basis as such benefits were provided during Executive’s
employment hereunder, provided that the continued participation of Executive is
possible under the general terms and provisions of such plans.  If Executive’s participation in any such plan
is barred or would result in adverse tax consequences to Executive or the
Company, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under such plan or, alternatively at the option of the
Company, reimburse Executive for the reasonable actual costs of purchasing in
the marketplace substantially similar benefits; provided, however, that in
either case 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 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 reasonably
comparable coverage or benefits are provided by or available from any other
employer of Executive, provided further that except as permitted by Section 409A
of the Code, the continued benefits provided to Executive pursuant to this Section 6(a)(ii) during
any calendar year will not affect the continued benefits provided to Executive
in any other calendar year, and the amount of any costs of purchasing benefits
reimbursed pursuant to this Section 6(a)(ii) shall be paid to Executive
no later than the last day of the calendar year following the calendar year in
which such costs are incurred by Executive; and

 

(iii) 
All unvested restricted stock or units granted to Executive and all unvested
stock options granted to Executive will be immediately vested as of the date on
which Executive’s employment is terminated. 
Further, all vested stock options granted to Executive, including those
vested by reason of the preceding sentence, will remain exercisable for ninety
(90) days after such termination of Executive’s employment, subject to the
earlier expiration of the term of such stock options.

 

(b)  Change of Control.  For purposes of this Agreement, “Change of
Control” means the earliest to occur of the following:

 

(i) 
any “person,” as such term is used in Sections 3(a)(9) and 13(d) of
the Securities Exchange Act of 1934 (“Person”), becomes a “beneficial owner,”
as such term is used in Rule 13d-3 promulgated under that act, of 30% or
more of the Voting Stock of the Company;

 

10

(ii) 
the majority of the Board consists of individuals other than “incumbent”
directors, which term means the members of the Board on the Effective Date;
provided that any person becoming a director subsequent to such date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the incumbent directors will be considered to be
an incumbent director;

 

(iii) 
the Company adopts any plan of liquidation providing for the distribution of
all or substantially all of its assets;

 

(iv) 
all or substantially all of the assets or business of the Company is disposed
of pursuant to a merger, consolidation or other transaction (unless the
stockholders of the Company immediately prior to such merger, consolidation or
other transaction beneficially own, directly or indirectly, in substantially
the same proportion as they owned the Voting Stock of the Company, all of the
Voting Stock or other ownership interests of the entity or entities, if any,
that succeed to the business of the Company); or

 

(v) 
the Company combines with another company and is the surviving corporation but,
immediately after the combination, the stockholders of the Company immediately
prior to the combination hold, directly or indirectly, 50% or less of the
Voting Stock of the combined company (there being excluded from the number of
shares held by such stockholders, but not from the Voting Stock of the combined
company, any shares received by affiliates of such other company in exchange
for stock of such other company).

 

For purposes of the Change of Control
definition, “Company” will include any entity that succeeds to all or
substantially all, of the business of the Company and “Voting Stock” will mean
securities of any class or classes having general voting power under ordinary
circumstances, in the absence of contingencies, to elect the directors of a
corporation.

 

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

 

(i) 
the assignment to Executive by the Company of duties inconsistent with, or the
reduction, other than due solely to the fact that the Company no longer is a
publicly traded Company, of the powers and functions associated with, 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 Executive’s titles or offices as in effect
immediately prior to a Change of Control or Potential Change of Control, or any
removal of Executive from or any failure to re-elect Executive to any of such
positions, except in connection with the termination of his employment (A) by
the Company for a Disability Event or Cause or as a result of 

 

11

 

Executive’s death or (B) by
Executive other than for the reasons set forth in this Section 6(c);

 

(ii) 
a reduction by the Company in 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 which is
more than 50 miles outside of the Dallas/Fort Worth, Texas Metroplex area, or
the Company shall require Executive to be based anywhere other than at the
Company’s principal executive offices, if such location is more than 50 miles
outside of the Dallas/Fort Worth, Texas Metroplex area;

 

(iv) 
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 (or
replacement plans therefore that in the aggregate provide the same or more
favorable benefits) that provides (A) incentive or bonus compensation, (B) reimbursement
for reasonable expenses incurred by Executive in connection with the
performance of duties with the Company, and (C) pension benefits such as Section 401(k) plan
within the meaning of the Code;

 

(v) 
any material breach by the Company of any provision of this Agreement; and

 

(vi) 
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 Section 17(h).

 

If Executive believes that
an event specified in this Section 6(c) has occurred, Executive must
notify the Company of that belief within ninety (90) days following the
occurrence of such event.  The Company
will have thirty (30) days following receipt of such notice (such period,
the “Good Reason Designated Period”) in which to either rectify such event,
determine that such an event exists, or determine that such an event does not
exist.  If the Company does not take any
of the foregoing actions within the Good Reason Designated Period, Executive
may terminate his employment with the Company during the fourteen-day period
following the expiration of the Good Reason Designated Period.  If, during the Good Reason Designated Period,
the Company determines that such an event exists, the Company shall either (A) undertake
to cure such event during the Good Reason Designated Period and provide
Executive with written notice during the Good Reason Designated Period of the
Company’s determination that such event has been cured, or (B) provide
written notice to Executive during the Good Reason Designated Period that it
does not wish to cure such event, in which case Executive may terminate his
employment during the fourteen (14) day period following receipt of the 

 

12

 

notice specified in this clause (B).  If, during the Good Reason Designated Period,
the Company determines that (1) such event does not exist or (2) the
Company has cured such event pursuant to clause (A) of the preceding
sentence, then (x) Executive will not be entitled to rely on or assert
such event as a basis for a termination for Good Reason, and (y) if
Executive disagrees with the Company’s determination, Executive may file a
claim pursuant to Section 15 within thirty (30) days after Executive’s
receipt of written notice of the Company’s determination.

 

(d)  “Potential Change of Control”
shall mean the earliest to occur of the following events within six months
prior to a Change of Control:

 

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

 

(ii) 
proxies for the election of members of the Board are solicited by any person
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)  Excise Tax.

 

(i) 
Gross-Up.  In the event that the “Total
Payments” (defined below) would be subject to the “Excise Tax” (defined below)
the Company shall pay to Executive an additional amount (the “Gross-Up Payment”)
such that after payment by Executive of all taxes (including any Excise Tax)
imposed upon the Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, Executive retains from the Gross-Up Payment an amount
equal to the Excise Tax imposed upon the Total Payments.

 

(a) 
For purposes of determining whether any of the Total Payments will be subject
to the Excise Tax and the amount of such Excise Tax, (A) all “excess
parachute payments” within the meaning of Section 280G(b)(l) of the
Code shall be treated as subject to the Excise Tax unless, in the opinion of
Tax Counsel (defined below), such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered (within
the meaning of Section 280G(b)(4)(B) of the Code) in excess of the
base amount (within the meaning of 

 

13

 

Section 280G(b)(3) of
the Code) allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (B) the value of any noncash benefits or
any deferred payment or benefit shall be determined by the Auditor (defined
below) in accordance with the principles of Sections 280G(d)(3) and (4) of
the Code.  If the Auditor is prohibited
by applicable law or regulation from performing the duties assigned to it
hereunder, then a different auditor, acceptable to both the Company and
Executive, shall be selected.  The fees
and expenses of Tax Counsel and the Auditor shall be paid by the Company not
later than (a) the last day of the calendar year after the calendar year
in which Executive remits the Excise Tax to the applicable taxing authority
and/or (b) the last day of the calendar year in which the applicable
contest is concluded.

 

(b) 
For purposes of determining the amount of the Gross-Up Payment, Executive shall
be deemed to pay federal income tax at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of taxation
in the state and locality of Executive’s residence on the date of termination
(or if there is no date of termination, then the date on which the Gross-Up
Payment is calculated for purposes of this Section), net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.

 

(c) 
Notwithstanding the foregoing, if it shall be determined that Executive is
entitled to a Gross-Up Payment, but that the Total Payments would not be
subject to the Excise Tax if the Total Payments were reduced by an amount that
is less than 10% of the portion of the Total Payments that would be treated as “parachute
payments” under Section 280G of the Code, then the amounts payable to
Executive under this Agreement shall be reduced (but not below zero) to that
maximum amount that could be paid to Executive without giving rise to the
Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to
Executive.  For purposes of making the
reduction of amounts payable under this Agreement, such amounts shall be
eliminated in the following order:  (1) any
cash compensation, (2) any health or welfare benefits, (3) any equity
compensation, and (4) any other payments hereunder.  Reductions of such amounts shall take place
in the chronological order with respect to which such amounts would be paid
from the date of termination absent any acceleration of payment.  If the reduction of the amounts payable
hereunder would not result in a reduction of the Total Payments to the Safe
Harbor 

 

14

 

Cap,
no amounts payable under this Agreement shall be reduced pursuant to this
provision.

 

(d) 
In the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, within five (5) business days
following the time that the amount of such reduction in the Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise
Tax and other taxes imposed on that portion of the Gross-Up Payment being
repaid by the Executive).  In the event
that the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess within five (5) business days following the time
that the amount of such excess is finally determined.  The provisions of Section 6(e)(i)(c) regarding
the reduction of the payments under this Agreement to the Safe Harbor Cap shall
be applied taking into consideration this Section 6(e)(i)(d).  Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.

 

(ii) 
Other Terms.  At the time that
payments are made under Section 5(c) or 6(a) of this Agreement,
if requested by Executive, the Company shall provide Executive with a written
statement setting forth the manner in which such payments were calculated and
the basis for such calculations including, without limitation, any opinions, or
other advice the Company has received from Tax Counsel, the Auditor or other
advisors or consultants (and all such opinions or advice shall be in writing,
shall be attached to the statement and shall expressly state that Executive may
rely thereon).  Executive and the Company
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceeding concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.  Notwithstanding anything herein to the
contrary, this Section 6(e) shall be interpreted (and, if determined
by the Company to be necessary, reformed) to the extent necessary to fully
comply with the Sarbanes-Oxley Act; provided that the Corporation agrees to
maintain, to the maximum extent practicable, the original intent and economic
benefit to the Executive of the applicable provision without violating the
provisions of the Sarbanes-Oxley Act.

 

15

(iii) 
Definitions.  “Total Payments”
shall mean the payments and benefits received or to be received by Executive,
whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement, that constitute “parachute payments” as defined in Section 280G
of the Code (excluding the Gross-Up Payment) (“Parachute Payments”).  For this purposes, all of the payments and
benefits received by Executive or to be received by Executive in connection
with a Change of Control or in connection with Executive’s termination of
employment in respect of a Change of Control (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company,
any Person whose actions result in a Change of Control or any Person affiliated
with Company or such Person) shall be treated as Parachute Payments unless, in
the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to Executive
and selected by the accounting firm which was, immediately prior to the Change
of Control, the Company’s independent auditor (the “Auditor”), such payments or
benefits (in whole or in part) do not constitute Parachute Payments, including
by reason of Section 280G(b)(4)(A) of the Code. “Excise Tax”
shall mean the excise tax imposed under Section 4999 of the Code.

 

(iv) 
Any Gross-Up Payment that Executive becomes entitled to receive pursuant to
this Section 6(e) shall be paid to Executive not later than the last
day of the calendar year after the calendar year in which Executive remits the
underlying taxes to the applicable taxing authority.

 

7.  Time
of Payment; Section 409A.  (a) 
It is the intention of the Company and Executive that the provisions of this
Agreement comply with Section 409A of the Code and the rules, regulations
and other authorities promulgated thereunder (including the transition rules thereof)
and all provisions of this Agreement will be construed and interpreted in a
manner consistent with Section 409A of the Code.

 

(b)  To the extent Executive is a “specified
employee,” as defined in Section 409A(a)(2)(B)(i) of the Code,
notwithstanding the timing of payment provided in any other Section of
this Agreement, no payment, distribution or benefit under this Agreement that
constitutes a distribution of deferred compensation (within the meaning of
Treasury Regulation Section 1.409A-1(b)) upon separation from service
(within the meaning of Treasury Regulation Section 1.409A-1(h)), after
taking into account all available exemptions, that would otherwise be payable
during the six-month period after separation from service, will be made during
such six-month period, and any such payment, distribution or benefit will
instead be paid on the first business day after such six-month period.

 

(c)  In the event that the Company
determines that any provision of this Agreement does not comply with Section 409A
of the Code, the Company will be entitled, without Executive’s consent, to
amend or modify such provision to comply with Section 409A of the Code;
provided, however, that such amendment or modification will, 

 

16

 

to the greatest extent commercially practicable, maintain the economic
value to Executive of such provision.

 

(d)  For purposes of Section 409A
of the Code, each installment of Base Salary or the Severance Amount under
Sections 5(a) and 5(c)(i) will be deemed to be a separate
payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).

 

(e)  Neither Executive nor any creditor
or beneficiary of Executive shall have the right to subject any deferred
compensation (within meaning of Section 409A of the Code) payable under
this Agreement or under any other plan, policy, arrangement or agreement of or
with the Company or any affiliate thereof (this Agreement and such other plans,
policies, arrangements and agreements, the “Company Plans”) to any
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment or garnishment.  Except as
permitted by Section 409A of the Code, any deferred compensation (within
the meaning of Section 409A of the Code) payable to or for the benefit of
Executive under any Company Plan may not be reduced by, or offset against, any
amount owing by Executive to the Company or any affiliate thereof.

 

(f)  Notwithstanding anything to the contrary
in this Agreement, if any payment, distribution or provision of a benefit by
the Company to or for the benefit of Executive, whether paid or payable,
distributed or distributable or provided or to be provided pursuant to the
terms of this Agreement or otherwise (a “Payment”), would be subject to an
additional tax pursuant to Section 409A of the Code that would not have
been imposed absent such Payment, or any interest or penalties with respect to
such additional tax are otherwise imposed pursuant to Section 409A of the
Code (such additional tax, together with any such interest or penalties, are
hereinafter collectively referred to as the “Additional Taxes”), the Company
shall pay to Executive an additional payment (a “409A Gross-up Payment”) in an
amount such that after payment by Executive of all Additional Taxes, including
any income taxes and Additional Taxes imposed on any 409A Gross-up Payment,
Executive retains an amount of the 409A Gross-up Payment (taking into account
any similar gross-up payments to Executive under any stock incentive or other
benefit plan or program of the Company) equal to the Additional Taxes imposed
upon the Payments.  The Company and
Executive shall make an initial determination as to whether a 409A Gross-up
Payment is required and the amount of any such 409A Gross-up Payment.  Executive shall notify the Company in writing
of any claim by the Internal Revenue Service which, if successful, would
require the Company to make a 409A Gross-up Payment (or a 409A Gross-up Payment
in excess of that, if any, initially determined by the Company and Executive)
within ten business days after the receipt of such claim.  The Company shall notify Executive in writing
at least ten business days prior to the due date of any response required with
respect to such claim if it plans to contest the claim.  If the Company decides to contest such claim,
Executive shall cooperate fully with the Company in such action; provided,
however, the Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred in connection
with such action and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Additional Taxes or income tax, including interest and
penalties with respect thereto, imposed as a result of the Company’s
action.  If, as a result of the Company’s
action with respect to a claim, 

 

17

 

Executive receives a refund of any amount paid by the Company with
respect to such claim, Executive shall promptly pay such refund to the Company,
but in no event later than thirty (30) days after Executive receives such
refund. If the Company fails to timely notify Executive whether it will contest
such claim or the Company determines not to contest such claim, then the
Company shall immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive. Any 409A Gross-Up Payment or
other amounts in respect of taxes, interest or penalties that Executive becomes
entitled to receive pursuant to this Section 7(f) shall be paid to
Executive (or to the applicable taxing authority on Executive’s behalf) not
later than the last day of the calendar year after the calendar year in which
Executive remits the underling taxes to the applicable taxing authority. Any
amounts that Executive becomes entitled to receive in respect of costs and
expenses incurred in connection with a contest pursuant to this Section 7(f) shall
be paid not later than (a) the last day of the calendar year after the
calendar year in which Executive remits the underlying taxes to the applicable
taxing authority and (b) the last day of the calendar year in which the
applicable contest is concluded.

 

8.  Complete
Release.  As a condition of obtaining
benefits under this Agreement, Executive will be required to, within forty-five
(45) days following his termination of employment, execute and deliver a full
and complete release of any and all claims related to his employment or
termination of employment that 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 the
Company.  In the event that Executive
fails to execute and deliver such general release within such forty-five (45)
day period or revokes such general release (but only to the extent revocation
is permitted under the terms of such general release), Executive will forfeit
all entitlement to any payment, benefit or other amount hereunder.

 

9.  Non-Competition.  As a material inducement for the Company’s
promise to provide the trade secrets and confidential and proprietary
information described in Section 11 below, Executive agrees that during
the Term and for a period equal to the applicable period in which Executive
receives severance payments under this Agreement from the date of cessation or
termination of Executive’s employment with the Company for any reason
whatsoever, he will not, directly or indirectly, compete with the Company by
providing services relating to retail sales of jewelry 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 whole or in material part in the retail sale of jewelry in the United
States, Canada and/or Puerto Rico, including, but not limited to, specialty
jewelry retailers and other retailers having jewelry divisions or departments.  The restrictions contained in this Section 9
shall be tolled on a day-for-day basis for each day during which 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 

 

18

 

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.  Non-Solicitation
of Employees.  During the
Term and for a period of two (2) years after the termination or cessation
of his employment with the Company for any reason whatsoever, 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, solicit any employee of the Company or its subsidiaries
or affiliates or (b) 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 10 shall be tolled on a day-for-day basis for
each day during which 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 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 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.  Nondisclosure
of Trade Secrets. The Company promises to disclose to Executive and Executive
acknowledges that in and as a result of his employment with 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 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 (collectively, “Trade
Secrets”).  Executive acknowledges and
agrees that the Trade Secrets:

 

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

 

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

 

(iii) 
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

 

 

19

 

(iv)
 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.

 

Executive promises not to use in any way or
disclose any of the Trade Secrets, 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 Executive. 
All files, records, documents, information, data compilations and
similar items containing non-public and confidential information relating to
the business of the Company, whether prepared by 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 Executive’s period of active employment under this Agreement),
and in any event must be promptly delivered to the Company upon termination of
Executive’s employment with the Company. 
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 Executive’s employment with the Company, Executive shall timely notify and
promptly provide a copy of the subpoena, process or other request to the
Company.  For this purpose, Executive
irrevocably nominates and appoints the Company (including any attorney retained
by the Company), as his true and lawful attorney-in-fact, to act in Executive’s
name, place and stead to perform any reasonable and prudent act that 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 11 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.

 

12.  Non-Disparagement.  Executive expressly acknowledges, agrees, and
covenants that he will not make any public or private statements, comments, or
communications in any form, oral, written, or electronic (all of the foregoing,
for purposes of this paragraph, “Communications”), which in any way could
constitute libel, slander, or disparagement of the Company, its subsidiaries,
affiliates or parent, its and/or their employees, officers, and/or directors,
or which may be considered to be derogatory or detrimental to its or their good
name or business; provided, however, that the terms of this paragraph shall not
(a) apply to Communications between Executive and his spouse, 

 

20

 

clergy, or attorneys, which are subject to a claim of privilege
existing under common law, statute, or rule of procedure; (b) apply
to Communications required by law or made in response to a valid subpoena or
other lawful order compelling Executive to provide testimony or information;
provided, however, that in responding to a valid subpoena or other lawful
order, Executive agrees to provide the Company with advance notice and an
opportunity to seek a protective order or other safeguard for its confidential
information; (c) be construed to inhibit or limit Executive’s ability to
initiate or cooperate with any investigation by a governmental or regulatory
agency or official; or (d) prohibit Executive from responding to any
derogatory or inaccurate statement contained in a press release of the Company
concerning Executive for the purpose of correcting such inaccuracies or
defending his reputation.  Executive
specifically agrees not to issue any public statement concerning his employment
at Zale and/or the cessation of such employment.

 

13.  Executive
Representations and Agreements.  Executive agrees that Executive and the
Company are engaged in a highly competitive business and, due to Executive’s
position with the Company and the nature of Executive’s work, Executive’s
engaging in any business which is competitive with that of the Company will
cause the Company great and irreparable harm. 
Executive represents and warrants that the time, scope and geographic
area restricted by the foregoing Sections 9, 10, 11, and 12 pertaining to
no hire/non-solicitation, non-competition, confidentiality and nondisclosure,
and non-disparagement are reasonable, that the enforcement of the restrictions
contained in such
Sections would not be unduly burdensome to Executive, and that Executive will
be able to earn a reasonable living while abiding by the terms included
herein.  Executive agrees that the
restraints created by the covenants in Sections 9, 10, 11, and 12
pertaining to no hire/non-solicitation, non-competition, confidentiality and
nondisclosure, and non-disparagement 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, Executive
agrees that the need of the Company for the protection afforded by the
covenants of Sections 9, 10, 11, and 12 pertaining to no
hire/non-solicitation, non-competition, confidentiality and nondisclosure, and
non-disparagement are not outweighed by either the hardship to Executive or any
injury likely to the public.  Subject to Section 7(e),
Executive agrees that any breach by him of Sections 9, 10, 11, and 12
pertaining to no hire/non-solicitation, non-competition, confidentiality and
nondisclosure and non-disparagement will entitle the Company to discontinue any
payments specified in Sections 3, 5 or 6 above, for which Executive might
be eligible based on the terms of those Sections and to any other remedy
available at law or in equity. 
Notwithstanding the suspension or discontinuation of any such payments,
Executive agrees that the Company is entitled to insist on full compliance by
Executive with the full terms, including time periods, described in his
promises not to hire/solicit, compete, disclose confidential information or
Trade Secrets or disparage.  Any delay by
the Company in discontinuing payment shall not be construed as a waiver of any
rights to discontinue payment.

 

14.  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 

 

21

 

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
herefrom.  Furthermore, in lieu 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.

 

15.  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 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, 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 9, 10, 11, 12 or 13, 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 15 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.

 

16.  Survival.  Executive acknowledges and agrees that this
Agreement, including but not limited to Sections 9, 10, 11, 12, 13, 14,
15, 17, and 17(c), shall survive the termination of Executive’s employment
under this Agreement for whatever reason.  The existence of any claim or cause of action
of 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 Executive contained in this Agreement, including but not
limited to those contained in Sections 9, 10, 11, 12, 13, and 15.

 

22

 

17.  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;

 

(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 17:

 

	
  If to the Company:

  	
  Zale Corporation  

  901 W. Walnut Hill
  Lane

  Irving, Texas 75038  

  Attention: General
  Counsel

  
	
   

  	
   

  
	
  If to Executive:  cc:

  	
  Neal Goldberg  

  18 Whalen Court  

  West Orange, NJ
  07052-3679  

  
	
  cc:

  	
  Hollis Gonerka Bart, Esq.  

  Withers Bergman LLP  

  430 Park Avenue, 10th Floor  

  New York, NY 10022

  

 

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 (3) 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 and each of the agreements,
plan and programs referenced herein 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, 

 

23

 

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)  No Mitigation.  Except as provided in Sections 5(c)(ii),
5(e), and 6(a)(ii) (regarding continued welfare benefits), in no event
shall Executive be obligated to seek other employment or to take any other
action to mitigate the amounts payable to Executive under any of the provisions
of this Agreement, nor shall the amount of any payment hereunder be reduced by
any compensation earned as a result of Executive’s employment by another
employer

 

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

 

(g)  Costs.  If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement during Executive’s
lifetime, each party shall bear its own costs and expenses unless Executive
prevails on at least one major issue, in which case Executive’s costs shall be
borne by the Company.  No amount of any such
costs paid by the Company on behalf of Executive in any calendar year will
affect the amount of any such costs to be paid by the Company on behalf of
Executive in any other calendar year, and any reimbursements paid to Executive
for such costs shall be paid no later than the last day of the calendar year
next following the calendar year in which such costs are incurred.

 

(h)  Estate.  If 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.

 

(i)  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 Executive hereunder are personal to him, and no such right or
benefit may be assigned by him.

 

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

 

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

 

[Signature Page Follows]

 

24

 

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

 

	
   

  	
  EXECUTIVE,

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Neal Goldberg

  	
   

  
	
   

  	
  Name:
  Neal Goldberg

  
	
   

  	
   

  

 

 

	
   

  	
  ZALE
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  John B. Lowe, Jr.

  	
   

  
	
   

  	
  Name:
  John B. Lowe, Jr.

  
	
   

  	
  Title:
  Chairman of the Board

  

 

25Exhibit 10.20

 

EXECUTION COPY

 

EMPLOYMENT AGREEMENT

 

EMPLOYMENT AGREEMENT (“Agreement”)
dated as of January 8, 2008, between Rafaella Apparel Group, Inc.
(the “Company”) and Husein Jafferjee (the “Executive”).

 

WHEREAS, the Company desires
to employ the Executive as Chief Operating Officer of the Company and wishes to
acquire and be assured of his services on the terms and conditions hereinafter
set forth; and

 

WHEREAS, the Executive
desires to be employed by the Company as Chief Operating Officer of the Company
and to perform and to serve the Company on the terms and conditions hereinafter
set forth;

 

NOW, THEREFORE, in
consideration of the mutual terms, covenants, agreements and conditions
hereinafter set forth, the Company and the Executive hereby agree as follows:

 

1.                                       Term.  Subject to earlier termination pursuant to Section 4,
this Agreement and the employment relationship hereunder shall commence on January 31,
2008 (the “Effective Date”) and continue until January 31, 2010; provided
that this Agreement and the employment relationship created hereunder shall
continue thereafter for consecutive twelve (12) month periods commencing on
each subsequent January 31 (the “Renewal Date”) unless either party
gives the other party prior written notice of the party’s election to terminate
this Agreement at least ninety (90) days prior to the Renewal Date, in which
case the Term shall terminate on the day prior to the Renewal Date.  As used in this Agreement, the “Term”
shall refer to the period beginning on the Effective Date and ending on the
date the Executive’s employment terminates in accordance with this Section 1
or Section 4.

 

2.                                       Duties and
Title.

 

2.1                                 Title.  The Company shall employ the Executive to
render exclusive and full-time services to the Company and its
subsidiaries.  The Executive shall serve
in the capacity of Chief Operating Officer (the “COO”) and report to the
chief executive officer (“CEO”) and to the Board of Directors of the
Company (the “Board”).

 

2.2                                 Duties.  The Executive will have such authority and
responsibilities and will perform such executive duties customarily performed
by a chief operating officer of a company in similar lines of business as the
Company and its subsidiaries or as may be assigned to the Executive by the CEO
and/or the Board consistent with the position and authority of the Executive as
COO.  The executive offices of the
Company shall be located in New York County, New York, and the Executive’s
principal place of employment shall be at such offices.  The Executive will devote all his full
working time and attention to the performance of such duties and to the
promotion of the business and interests of the Company and its subsidiaries; provided
that the Executive may engage in philanthropic and passive investment activities
which are not in conflict with or do not interfere with the performance of his
duties; and provided, further, that the Executive will be
permitted to devote such time as is reasonable and as does not interfere with
the performance of his duties hereunder with respect to: (a) his board
membership, share 

 

1

 

ownership and related
responsibilities with Proprietary Technologies, Inc. and/or Nugrip, Inc.,
and (b) the Executive’s fifty percent (50%) ownership interest in
Jafajems, LLC.

 

3.                                       Compensation
and Benefits by the Company.  As compensation for all services performed by
the Executive for the Company and its subsidiaries, the Company shall provide
the Executive the following during the Term:

 

3.1                                 Base Salary.  The Company will pay to the Executive an
annual base salary of six hundred thousand dollars ($600,000), payable in
accordance with the customary payroll practices of the Company (the “Base
Salary”).

 

3.2                                 Bonuses.

 

(a)                                  The Executive
shall be eligible to receive an annual discretionary bonus (the “Annual
Bonus”) based on achievement of corporate performance objectives as
established by the Compensation Committee, which objectives shall be
commensurate with his position as COO. 
The Executive’s target bonus shall be seventy-five percent (75%) of the
Base Salary, and for the 2008 calendar year, the Executive shall receive an
Annual Bonus that is no less than fifty percent (50%) of the Base Salary as of
the Effective Date, one-half (1⁄2) of which shall be payable promptly after the
Company’s books are closed for the fiscal year ending June 30, 2008, and
one-half (1⁄2) of which shall be paid on or about December 31, 2008,
provided the Executive is employed on each such date.

 

(b)                                 The Executive
shall receive a signing bonus of three hundred thousand dollars ($300,000) (the
“Signing Bonus”), which shall be paid in two (2) equal installments
of one hundred fifty thousand dollars ($150,000) on February 28, 2008 and March 30,
2008, provided that the Executive is employed with the Company on January 31,
2008.

 

3.3                                 Participation
in Employee Benefit Plans.  The
Executive shall be entitled, if and to the extent eligible, to participate in
all of the applicable benefit plans of the Company, which may be available to
other senior executives of the Company, on the same terms as such other
executives.  The Company may at any time
or from time to time amend, modify, suspend or terminate any employee benefit
plan, program or arrangement for any reason without the Executive’s consent if
such amendment, modification, suspension or termination is consistent with the
amendment, modification, suspension or termination for other executives of the
Company.

 

3.4                                 Vacation.  The Executive shall be entitled to four (4) weeks
of paid vacation annually.

 

3.5                                 Expense
Reimbursement.  The
Executive shall be entitled to receive reimbursement for all appropriate
business expenses incurred by him in connection with his duties under this
Agreement in accordance with the policies of the Company as in effect from time
to time.

 

2

 

3.6                                 Transaction
Bonus.  The Executive shall receive an
amount equal to two and five-tenths percent (2.5%) of the Appreciated Value and
the Net Dividends available to the Company’s Common Stockholders in connection
with certain transactions involving the Company pursuant to the terms and
conditions attached hereto as Exhibit A (the “Transaction Bonus”).

 

3.7                                 Withholdings
and Deductions.

 

(a)                                  The payment of
the Base Salary, any Annual Bonus and any other compensation hereunder shall be
subject to income tax, social security and other applicable withholdings, as
well as such other deductions as may be required under applicable laws.

 

(b)                                 Section 409A.  It is intended that all payments hereunder
shall comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and the regulations and other guidance issued
thereunder (in aggregate, “Section 409A”) so as not to subject the
Executive to payment of interest or any additional tax under Section 409A.  In furtherance thereof, the parties agree to
the following:

 

(i)                                     If payment or
provision of any amount or benefit hereunder that is subject to Section 409A
at the time specified herein would subject such amount or benefit to any
additional tax under Section 409A, the payment or provision of such amount
or benefit shall be postponed to the earliest commencement date on which the
payment or provision of such amount or benefit could be made without incurring
such additional tax.

 

(ii)                                  In addition, to
the extent that any regulations or other guidance issued under Section 409A
(after application of the previous provisions of this Section 3.7(b))
would result in the Executive’s being subject to the payment of interest or any
additional tax under Section 409A, the parties agree, to the extent
reasonably possible, to amend this Agreement in order to avoid the imposition
of any such interest or additional tax under Section 409A, which amendment
shall have the minimum economic effect necessary and be reasonably determined
in good faith by the Company and the Executive.

 

(iii)                               Notwithstanding
any provision in this Agreement to the contrary, if any payment hereunder is
subject to Section 409A, and if such payment is to be paid on account of
the Executive’s separation from service (within the meaning of Section 409A),
and if the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B) of
the Code, then such payment shall be delayed until the first day after the
six-month anniversary of the Executive’s date of termination.

 

3

 

4.                                       Termination of
Employment.

 

4.1                                 The Executive’s
employment hereunder is subject to termination earlier than as contemplated by Section 1,
as follows:

 

(a)                                  immediately
upon the death of the Executive;

 

(b)                                 upon the
Executive’s Disability (as defined below);

 

(c)                                  by the
Executive at any time for any reason whatsoever, including, without limitation,
resignation, retirement or for Good Reason (as defined below); and

 

(d)                                 by the Company
at any time for Cause (as defined below) or without Cause.

 

4.2                                 The following
terms shall have the following meanings:

 

(a)                                  “Cause”
shall mean the Executive’s: (i) indictment or arrest for or formal charge
with any felony, (ii) commission of any act of dishonesty or moral
turpitude which is, or is reasonably likely to be, materially detrimental to
the Company and/or its affiliates, (iii) failure to obey the reasonable
and lawful orders of the Board or (iv) gross negligence in the performance
of, or willful disregard of, his obligations hereunder; provided, however,
that no termination pursuant to clause (iii) shall be effective unless
such failure continues after the Executive has been given written notice
thereof and thirty (30) days thereafter in which to cure the same.

 

(b)                                 “Disability”
shall mean a physical or mental incapacity that (i) prevents the Executive
from performing the essential functions of his position with the Company for a
period of one hundred eighty (180) or more days, whether or not consecutive,
occurring within any period of twelve (12) consecutive months, as determined in
accordance with any long-term disability plan provided by the Company in which
the Executive is a participant, or (ii) can be expected, in the opinion of
a licensed physician selected by the Board and reasonably acceptable to the
Executive, to result in the Executive’s death or to last for a continuous
period of one hundred eighty (180) or more days occurring within any period of
twelve (12) consecutive months.

 

(c)                                  “Good Reason”
shall mean the Executive’s resignation within ninety (90) days after the
occurrence of one or more of the following actions taken by the Company without
the Executive’s consent: (i) a material diminution of the Executive’s
responsibilities or authority hereunder, or (ii) a material decrease in
the Executive’s compensation and benefits, in the aggregate; provided, however,
that the following shall not constitute Good Reason: (x) any variations in
the amount of any Annual Bonus from one year to another, including the failure
to award any such compensation in any given year (provided such
variation or failure to award an Annual Bonus is consistent with the
performance 

 

4

 

of the Company and its subsidiaries and is
based on objectives commensurate with the Executive’s position as COO as
established by the Compensation Committee for that year), or (y) an
agreement between Cerberus Capital Management, L.P. (“Cerberus”) and the
Executive pursuant to which the Executive is transferred to another equivalent
position within Cerberus operations or another portfolio company and the new
employing entity offers the Executive employment pursuant to substantially
similar terms and conditions as this Agreement. 
Notwithstanding the foregoing, no resignation for Good Reason shall be
effective unless and until the Executive gives the Company notice of the
reasons for a Good Reason resignation, and the Company fails to remedy the same
within thirty (30) days thereafter.

 

5.                                       Consequences of
Termination.

 

5.1                                 Termination Due
to Death or Disability.  In
the event of a termination due to the Executive’s death or Disability, the
Executive or his estate, as the case may be, shall be entitled to, in lieu of
any other compensation and benefits hereunder:

 

(a)                                  payment of his
Base Salary at the rate in effect at the time of termination until the
effective date of termination;

 

(b)                                 payment for any
accrued but unused vacation days in accordance with Company policy;

 

(c)                                  reimbursement
of expenses incurred but not paid prior to such termination; and

 

(d)                                 such rights to
other benefits as may be provided in applicable pension and welfare plans of
the Company or by law, according to the terms and provisions of such plans or
by law, provided that any such plans do not contradict any provision of this
Agreement;

 

the foregoing (a) through
(d) referred to herein as the “Accrued Benefits”.

 

5.2                                 Termination for
Cause or Without Good Reason.  In the event that the Company terminates the
Executive’s employment for Cause or the Executive terminates his employment
without Good Reason, the Executive shall be entitled to the Accrued Benefits,
in lieu of any other compensation and benefits hereunder.  In addition, in the event of any such
termination in the first nine (9) months after the Effective Date, the
Executive shall be required to repay the Signing Bonus within thirty (30) days
following the effective date of termination.

 

5.3                                 Termination
Without Cause or for Good Reason.  In the event the Company terminates the
Executive’s employment hereunder without Cause or the Executive terminates his
employment for Good Reason, the Executive shall be entitled to, in lieu of any
other compensation hereunder:

 

(a)                                  the Accrued Benefits;

 

5

 

(b)                                 four (4) payments
in the following amount(s) and in accordance with the following payment
schedule:

 

(i)                                     the first
payment (payable within sixty (60) days of the effective date of termination) shall
be equal to (x) the Base Salary in effect at the time of termination that
would be payable over the remainder of the Term or for twelve (12) months,
whichever is greater, less (y) the total payments under
subparagraph (b)(ii) below; and

 

(ii)                                  the second,
third and fourth payments shall be equal to (x) twice the maximum amount
that may be taken into account under a qualified plan pursuant to Code Section 401(a)(17)
in effect at the time of termination, divided by (y) three (3), which such
payments shall be payable on the sixth, ninth and twelfth month anniversaries
of the effective date of termination; and

 

(c)                                  payment of a
pro-rated Annual Bonus, payable at such time as the Company pays annual bonuses
to similarly situated executives, but in no event later than sixty (60) days
following the end of the calendar year in which the termination occurs;

 

(d)                                 continuation of
participation in the Company’s group medical plan pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”) at the Company’s
expense until the earlier of twelve (12) months from the date of termination or
the date on which the Executive first becomes eligible for substantially
equivalent insurance coverage provided by any other entity following
termination; and

 

(e)                                  in the event
the Executive’s employment is terminated pursuant to this Section 5.3
on or prior to December 31, 2008 (or any payment date, if later), any
payment(s) of the Annual Bonus for the 2008 calendar year pursuant to the
final clause of Section 3.2 that remain unpaid as of the effective
date of termination (payable within sixty (60) days of the effective date of
termination).

 

5.4                                 Expiration of
Term.  In the event that the Company
terminates the Executive’s employment by giving him notice of its intent not to
renew in accordance with Section 1, which shall have the same
effect as an involuntary termination without Cause, the Executive shall be
entitled to, in lieu of any other compensation hereunder:

 

(a)                                  the Accrued
Benefits;

 

(b)                                 four (4) payments
in the following amount(s) and in accordance with the following payment
schedule:

 

(i)                                     the first
payment (payable within sixty (60) days of the effective date of termination)
shall be equal to (x) the Base Salary in effect at the time of termination
that would be payable over the remainder of the 

 

6

 

Term or for twelve (12) months, whichever is
greater, less (y) the total payments under subparagraph (b)(ii) below;
and

 

(ii)                                  the second,
third and fourth payments shall be equal to (x) twice the maximum amount
that may be taken into account under a qualified plan pursuant to Code Section 401(a)(17)
in effect at the time of termination, divided by (y) three (3), which such
payments shall be payable on the sixth, ninth and twelfth month anniversaries
of the effective date of termination; and

 

(c)                                  payment of a
pro-rated Annual Bonus, payable in the year following the year of termination
at such time as the Company pays annual bonuses to similarly situated
executives, but in no event later than sixty (60) days following the end of the
calendar year in which the termination occurs.

 

In the event that the
Executive terminates his employment by giving the Company notice of his intent
not to renew in accordance with Section 1, the Executive shall be
entitled to the Accrued Benefits, in lieu of any other compensation and
benefits hereunder.

 

5.5                                 Change in
Control.  In the event the Company
terminates the Executive’s employment hereunder without Cause or the Executive
terminates his employment for Good Reason within two (2) years following a
Change in Control (as defined below), the Executive shall be entitled to, in
lieu of any other compensation hereunder:

 

(a)                                  the Accrued
Benefits;

 

(b)                                 payment of an
amount equal to his annual Base Salary in effect at the time of termination in
a lump sum payable within sixty (60) days of the effective date of termination;

 

(c)                                  payment of a
pro-rated Annual Bonus, payable in the year following the year of termination
at such time as the Company pays annual bonuses to similarly situated
executives, but in no event later than sixty (60) days following the end of the
calendar year in which the termination occurs;

 

(d)                                 continuation of
participation in the Company’s group medical plan pursuant to COBRA at the
Company’s expense until the earlier of twelve (12) months from the date of
termination or the date on which the Executive first becomes eligible for
substantially equivalent insurance coverage provided by any other entity
following termination; and

 

(e)                                  in the event
the Executive’s employment is terminated pursuant to this Section 5.5
on or prior to December 31, 2008 (or any payment date, if later), any
payment(s) of the Annual Bonus for the 2008 calendar year pursuant to the
final clause of Section 3.2 that remain unpaid as of the effective
date of termination (payable within sixty (60) days of the effective date of
termination).

 

7

 

For purposes of this Section 5.5,
“Change in Control” shall mean, in one or a series of related
transactions: (i) a transaction(s) resulting in the sale of all or
substantially all of the assets of the Company (other than in connection with
financing transactions, sale and leaseback transactions or other similar
transactions) to a person or entity who is not a stockholder of the Company on
the Effective Date hereof or an affiliate of such a stockholder (such person or
entity being a “Third Party”); or (ii) a transaction(s) resulting
in the sale by any persons or entities who are stockholders of the Company
immediately prior to the date of such sale, or any of their affiliates, or a
merger or other extraordinary corporate transaction or business combination
involving the Company, resulting in more than fifty percent (50%) of the voting
stock of the Company being held by a Third Party.

 

5.6                                 Non-Duplication
of Benefits. 
Notwithstanding the foregoing, nothing in this Agreement shall result in
a duplication of payments or benefits provided under this Section 5,
nor shall anything in this Agreement require the Company to make any payment or
to provide any benefit to the Executive that the Company is otherwise required
to provide under any other contract, agreement or arrangement.  For the avoidance of doubt, the payments and
benefits provided under this Section 5 shall be in lieu of any
severance or other termination payments that otherwise might be payable under
any plan, program or policy maintained by the Company.

 

5.7                                 Conditions.

 

(a)                                  No payments or
benefits payable to the Executive upon the termination of his employment
pursuant to this Section 5 (other than the Termination Payments)
shall be made to the Executive unless and until the Executive executes a
general release in favor of the Company, its affiliates and Cerberus and such
general release becomes effective pursuant to its terms; provided, that
the general release shall not release any rights the Executive has under this Section 5,
the Transaction Bonus as set forth in Section 3.6 and Exhibit A
or to indemnification under Section 8 below.

 

(b)                                 No interest
shall accrue on or be paid with respect to any portion of any payments
hereunder, except as required by law.

 

6.                                       Ownership of
Ideas; Duty of Loyalty.

 

6.1                                 Confidentiality.

 

(a)                                  During the
Term, the Executive will have access to certain trade secrets and confidential
information relating to the Company and its subsidiaries and affiliates (the “Protected
Parties”) which is not readily available from sources outside the
Company.  The confidential and
proprietary information and, in any material respect, trade secrets of the
Protected Parties are among their most valuable assets, including but not
limited to, their customer, supplier and vendor lists, databases, competitive
strategies, computer programs, frameworks, or models, their marketing programs,
their sales, financial, marketing, training and technical information, their
product development (and proprietary product data) 

 

8

 

and any other information, whether
communicated orally, electronically, in writing or in other tangible forms
concerning how the Protected Parties create, develop, acquire or maintain their
products and marketing plans, target their potential customers and operate
their retail and other businesses.  The
Protected Parties invested, and continue to invest, considerable amounts of
time and money in their process, technology, know-how, obtaining and developing
the goodwill of their customers, their other external relationships, their data
systems and data bases, and all the information described above (hereinafter
collectively referred to as “Confidential Information”), and any
misappropriation or unauthorized disclosure of Confidential Information, in any
form, would irreparably harm the Protected Parties.

 

(b)                                 The Executive
acknowledges that such Confidential Information constitutes valuable, highly
confidential, special and unique property of the Protected Parties.  The Executive shall hold in a fiduciary
capacity for the benefit of the Protected Parties all Confidential Information
obtained by the Executive during the Term of this Agreement.  Except as required by law, an order of a
court or governmental agency with jurisdiction, or a subpoena or other lawful
process, the Executive shall not, during the Term or at any time thereafter,
disclose any Confidential Information, directly or indirectly, to any person or
entity for any reason or purpose whatsoever, nor shall the Executive use it in
any way, except in the course of his employment or to enforce any rights or
defend any claims hereunder or under any other agreement to which the Executive
is a party, provided that such disclosure is relevant to the enforcement of
such rights or defense of such claims and is only disclosed in the formal
proceedings related thereto.  The
Executive shall take all reasonable steps to safeguard the Confidential
Information and to protect it against disclosure, misuse, corporate espionage,
loss and theft.  The Executive
understands and agrees that he shall acquire no rights to any such Confidential
Information.

 

(c)                                  All files,
records, documents, drawings, specifications, data, computer programs,
evaluation mechanisms and analytics and similar items relating thereto or to
the business of the Protected Parties, as well as all customer lists, specific
customer information, compilations of product research and marketing techniques
of Protected Parties, whether prepared by the Executive or otherwise coming
into the Executive’s possession, shall remain the exclusive property of the Protected
Parties, and the Executive shall not remove any such items from the premises of
any of the Protected Parties, except in furtherance of the Executive’s duties
under this Agreement.

 

(d)                                 As requested by
the Company and at the Company’s expense, from time to time and upon the
termination of this Agreement, the Executive will promptly deliver to the
Company all copies and embodiments, in whatever form, of all Confidential
Information in the Executive’s possession or within his control (including, but
not limited to, memoranda, records, notes, plans, photographs, manuals,
notebooks, documentation, program listings, flow charts, magnetic media, disks,
diskettes, tapes and all other materials containing any Confidential 

 

9

 

Information) irrespective of the location or
form of such material.  If requested by
the Company, the Executive will provide the Company with written confirmation
that all such materials have been delivered to the Company as provided herein.

 

6.2                                 Executive Work
Product: Inventions.

 

(a)                                  Ideas,
processes, developments and discoveries conceived by the Executive in any way
related to the Confidential Information or the development, production,
financing or marketing activities carried on by the Company, whether conceived
alone or with others during the performance of his duties, and whether or not
conceived during the regular working hours of the Company (collectively, the “Executive
Work Product”), shall be the sole and exclusive property of the Company,
and the Executive hereby assigns to the Company, his entire right, title and
interest in and to the Executive Work Product. 
The Company shall also have the right to keep any and all of the
Executive Work Product as its Confidential Information.

 

(b)                                 Unless and
except to the extent that the Company specifically agrees in writing to the
contrary, the Executive hereby agrees, acknowledges and confirms that any and
all work and other products to which he shall have directly or indirectly
contributed during the Term or which other employees shall have produced or to
which they shall have contributed under his supervision or otherwise during the
Term shall be deemed to be “works for hire” in and to which the Company shall
have full and exclusive right, title and interest.  The Executive shall execute any and all
documents reasonably necessary and appropriate to evidence the foregoing, and
Executive hereby irrevocably appoints the Company as Executive’s attorney in
fact (which appointment will be deemed for consideration and coupled with an
interest) to execute and file any such documents on the Executive’s behalf.

 

(c)                                  The Executive
will hold for the Company’s sole benefit any Invention, which is to be the
exclusive property of the Company regardless of whether any patent, copyright,
trademark or other right or protection is issued.  Any and all Inventions will be promptly and
fully disclosed by the Executive to the Board or the CEO, and are hereby
assigned to the Company, without any additional compensation therefor.  For purposes of this Agreement, “Inventions”
shall mean all inventions, products, discoveries, improvements, processes,
marketing and services methods or techniques, formulae, designs, styles,
specifications, data bases, computer programs (whether in source code or object
code), know-how, strategies and data, whether or not patentable or registrable
under copyright or similar statutes, made, developed or created by the
Executive, whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular hours
of work or otherwise, during the period of his employment by the Company which
may pertain to the business, products or processes of the Company, and all
papers, drawings, models, data, documents and other material pertaining to or
in any way relating to any of the Inventions.

 

10

 

6.3                                 Nondisparagement.  The Executive agrees that he will not at any
time (whether during or after the Term) publish or communicate to any person or
entity any Disparaging Remarks (as defined below) concerning the Company,
Cerberus, their parents, subsidiaries and affiliates, and their respective
present and former members, partners, directors, officers, shareholders,
employees, agents, attorneys, successors and assigns, and the Company and its
subsidiaries will not at any time (whether during or after the Term) publish or
communicate to any person or entity any Disparaging Remarks concerning the
Executive.  “Disparaging Remarks”
are remarks, comments or statements that impugn the character, honesty,
integrity or morality or business acumen or abilities in connection with any
aspect of the operation of business of the individual or entity being
disparaged.

 

6.4                                 Non-Solicitation
or Hire.  During the period commencing
on the Effective Date and continuing for a period of twelve (12) months after
the Executive’s employment ceases regardless of the reason (the “Restricted
Period”), the Executive shall not, whether individually, or as a director,
manager, member, stockholder, partner, owner, employee, consultant or agent,
directly or indirectly, solicit or attempt to solicit or induce,

 

(a)                                  any person or
entity that is a customer of any of the Protected Parties, or who was a
customer of any of the Protected Parties at any time during the twelve (12)
month period immediately prior to the date the Executive’s employment
terminates, in any manner that interferes, or is reasonably likely to
interfere, with any agreement or contract between any of the Protected Parties
and such customer or that otherwise causes harm, or is reasonably likely to
cause harm, to any of the Protected Parties,

 

(b)                                 any supplier to
any of the Protected Parties to terminate, reduce or alter negatively its
relationship with any of the Protected Parties or in any manner that interferes
with any agreement or contract between any of the Protected Parties and such
supplier or that otherwise causes harm, or is reasonably likely to cause harm,
to any of the Protected Parties, or

 

(c)                                  any employee of
any of the Protected Parties or any person who was an employee of any of the
Protected Parties during the six (6) month period immediately prior to the
date the Executive’s employment terminates to terminate such employee’s
employment relationship with any of the Protected Parties in order, in either
case, to enter into a similar relationship with the Executive, or any other
person or any entity in competition with the Business of any of the Protected
Parties.  Nor will the Executive,
directly or indirectly, on behalf of himself or any other entity, employ or
solicit for employment, or advise or recommend to any other person or entity
that they employ or solicit for employment, any employee of any of the Protected
Parties or retain or attempt to retain the services of any individual who is an
independent contractor for any of the Protected Parties if doing so would
diminish the services any such independent contractor was providing to any of
the Protected Parties.

 

11

 

Notwithstanding the foregoing, the Company acknowledges and agrees
that, given the Executive’s longstanding service of thirty (30) years or more
in the consumer retail business and his pre-existing relationships with
customers, suppliers and employees, the Executive shall be permitted to
maintain such relationships following his termination of employment with the
Company or any of the other Protected Parties. 
Such activities shall not constitute a breach of this Section 6.4
or any other provision in this Agreement, unless they interfere with, or are
reasonably likely to interfere with, or cause harm to, the Business of any of
the Protected Parties.

 

6.5                                 Non-Competition.

 

(a)                                  During the
Restricted Period, the Executive shall not, whether individually, as a
director, manager, member, stockholder, partner, owner, employee, consultant or
agent of any business, or in any other capacity, other than on behalf of the
Protected Parties, organize, establish, own, operate, manage, control, engage
in, participate in, invest in, permit his name to be used by, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or business organization), or otherwise assist any
person or entity that engages in or owns, invests in, operates, manages or
controls any venture or enterprise which engages in the women’s career and
sports apparel for the moderate and better categories business in the
geographic locations where the Company and its subsidiaries engage in such
business (the “Business”).

 

(b)                                 Notwithstanding
the foregoing, nothing in this Agreement shall prevent the Executive from
owning for passive investment purposes not intended to circumvent this
Agreement, less than five percent (5%) of the publicly traded common equity
securities of any company engaged in the Business (so long as the Executive has
no power to manage, operate, advise, consult with or control the competing
enterprise and no power, alone or in conjunction with other affiliated parties,
to select a director, manager, general partner, or similar governing official
of the competing enterprise other than in connection with the normal and
customary voting powers afforded the Executive in connection with any
permissible equity ownership), nor shall the Executive be prevented from
participating in the activities as set forth in Section 2.2.

 

6.6                                 Property.  The Executive acknowledges that all originals
and copies of materials, records and documents generated by him or coming into
his possession during his employment by the Company or its subsidiaries are the
sole property of the Company and its subsidiaries (“Company Property”).  During the Term, and at all times thereafter,
the Executive shall not remove, or cause to be removed, from the premises of
the Company or its subsidiaries, copies of any record, file, memorandum,
document, computer related information or equipment, or any other item relating
to the Business of the Company or its subsidiaries, except in furtherance of
his duties under the Agreement.  When the
Executive’s employment with the Company terminates, or upon request of the
Company at any time, the Executive shall promptly deliver to the Company all
copies of Company Property in his possession or control.

 

12

 

6.7                                 Reasonableness
of the Restrictions.  The
Executive represents that his experience, capabilities and circumstances are
such that the provisions of this Section 6 will not prevent him
from earning a livelihood.  The Employee
further agrees that the limitations set forth in this Section 6 are
reasonable in duration, geographic area and scope and are properly required for
the adequate protection of the Businesses of the Company.  It is understood and agreed that the
covenants made by the Executive in this Section 6 shall survive the
expiration or termination of this Agreement and the Term.  Notwithstanding anything to the contrary in
this Section 6, at any time during the Restricted Period the Executive
may submit a written request to the Company for a limited waiver of any
covenant contained herein for any specific situation or circumstance.

 

6.8                                 Other
Agreements.  In the
event the Executive has entered or may enter after the Effective Date into any
agreement providing the same or similar obligations as set forth in this Section 6,
all such agreements shall be read together to give the greatest protection to
the Company.

 

7.                                       Remedies;
Specific Performance.  The parties
acknowledge and agree that the Executive’s breach or threatened breach of any
of the restrictions set forth in Section 6 will result in
irreparable and continuing damage to the Protected Parties for which there may
be no adequate remedy at law and that the Protected Parties shall be entitled
to equitable relief, including specific performance and injunctive relief as
remedies for any such breach or threatened or attempted breach.  The Executive also agrees that such remedies
shall be in addition to any and all remedies, including damages, available to
the Protected Parties against him for such breaches or threatened or attempted
breaches.  In addition, without limiting
the Protected Parties’ remedies for any breach of any restriction on the
Executive set forth in Section 6, the Executive shall not be
entitled to any payments set forth in Section 5 hereof, except for
the Accrued Benefits or as otherwise required by law, if the Executive has
materially breached the covenants applicable to the Executive contained in Section 6,
and the Executive will immediately return to the Protected Parties any such
payments previously received under Section 5 upon such a material
breach, and, in the event of such material breach, the Protected Parties will
have no obligation to pay any of the amounts that remain payable by the Company
under Section 5.

 

8.                                       Indemnification.

 

8.1                                 The Company
agrees, to the extent permitted by applicable law and its organizational
documents, to indemnify, defend and hold harmless the Executive from and
against any and all losses, suits, actions, causes of action, judgments,
damages, liabilities, penalties, fines, costs or claims of any kind or nature (“Indemnified
Claim”), including reasonable legal fees and related costs incurred by the
Executive in connection with the preparation for or defense of any Indemnified
Claim, whether or not resulting in any liability, to which the Executive may
become subject (including without limitation as a witness) or liable or which
may be incurred by or assessed against the Executive, relating to or arising
out of his employment by the Company, provided that the Company shall only
defend, but not indemnify or hold the Executive harmless, from and against an
Indemnified Claim in the event there is a final, non-appealable, determination
that the Executive’s liability with respect to such Indemnified Claim resulted
from the Executive’s willful misconduct or gross negligence.

 

13

 

8.2                                 At the
Executive’s request, the Company shall advance to the Executive the cost of all
reasonable legal fees and related costs incurred by the Executive arising out
of or relating to any Indemnified Claim, provided as a condition to any such
advance the Company may require that the Executive agree to repay the funds
advanced to the extent it is determined by a final, non-appealable judgment of
a court of competent jurisdiction that the Executive is not entitled to
indemnification for such reasonable legal fees and related costs.

 

8.3                                 The Company’s
obligations under this section shall be in addition to any other right, remedy
or indemnification which the Executive may have or be entitled to at common law
or otherwise.  The provisions of this Section 8
shall survive the termination of this Agreement for any reason.

 

9.                                       Arbitration.

 

9.1                                 Any dispute or
controversy arising under or in connection with this Agreement, other than as
provided in Section 7, shall be resolved by binding
arbitration.  The arbitration shall be
held within the State of New York, and, except to the extent inconsistent with
this Agreement, shall be conducted in accordance with the Employment
Arbitration Rules of the American Arbitration Association then in effect
at the time of the arbitration and otherwise in accordance with principles
which would be applied by a court of law or equity.

 

9.2                                 The arbitrator
shall be acceptable to both the Company and the Executive.  If the parties cannot agree on an acceptable
arbitrator, the dispute shall be heard by a panel of three arbitrators, one
appointed by each of the parties and the third appointed by the other two
arbitrators.  All expenses of arbitration
shall be borne by the party who incurs the expense or, in the case of joint
expenses, by both parties in equal portions, except that in the event the
Executive substantially prevails on the principal issues of such dispute or
controversy, the arbitrator shall have the authority to direct the Company to
pay all or a portion of the Executive’s share of such expenses.

 

9.3                                 Notwithstanding
the above, however, because time is of the essence, whenever a violation or
threatened violation of the covenants and obligations contained in Section 6
is alleged, the parties agree that the enforcement of such covenants and
obligations and any request for injunctive relief pursuant to Section 7
shall be excepted from the provisions of this Section 9.

 

10.                                 Other
Provisions.

 

10.1                           Notices.  Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid or overnight mail and shall be deemed given when
so delivered personally, or sent by facsimile transmission or, if mailed, four (4) days
after the date of mailing or one (1) day after overnight mail, as follows:

 

(a)                                  If the Company,
to:

 

Rafaella Apparel Group, Inc.

1411 Broadway

14

 

	
  New York, New York 10018

  
	
  Attention:

  	
   

  	
  Secretary

  
	
  Telephone:

  	
   

  	
  (212) 403-0300

  
	
  Fax:

  	
   

  	
  (212) 764-9275

  
	
   

  	
   

  	
   

  
	
  With copies to:

  

  Milbank, Tweed, Hadley & McCloy LLP

  One Chase Manhattan Plaza

  New York, NY 10005 

  
	
  Attention:

  	
   

  	
  Roland Hlawaty

  
	
  Telephone:

  	
   

  	
  (212) 530-5735

  
	
  Fax:

  	
   

  	
  (212) 822-5735

  
	
   

  	
   

  	
   

  
	
  and

  
	
   

  
	
  Cerberus Capital Management, L.P.

  299 Park Avenue

  New York, NY 10171

  
	
  Attention:

  	
   

  	
  George Kollitides

  
	
  Fax:

  	
   

  	
  (212) 284-7916

  

 

(b)                                 If to the
Executive, to the Executive’s home address reflected in the Company’s records,

 

	
  With a copy to:

  

  Epstein Becker & Green, P.C

  250 Park Avenue

  New York, NY 10177-1211

  
	
  Attention:

  	
   

  	
  Howard Pianko, Esq.

  
	
  Fax:

  	
   

  	
  (212) 878-8691

  

 

10.2                           Entire
Agreement.  This
Agreement, including Exhibit A hereto, contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.  To the extent that any provision of this
Agreement conflicts with any current or future policy or procedure of the
Company, the provisions of this Agreement shall prevail.

 

10.3                           Representations
and Warranties by Executive.  The Executive represents and warrants that he
is not a party to or subject to any restrictive covenants, legal restrictions
or other agreements in favor of any entity or person which would in any way
preclude, inhibit, impair or limit the Executive’s ability to perform his
obligations under this Agreement, including, but not limited to,
non-competition agreements, non-solicitation agreements or confidentiality
agreements.

 

 

15

 

10.4                           Waiver and
Amendments.  This
Agreement may be amended, modified, superseded, canceled, renewed or extended,
and the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance.  No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver of any right, power or privilege
hereunder, nor any single or partial exercise of any right, power or privilege
hereunder, preclude any other or further exercise thereof or the exercise of
any other right, power or privilege hereunder.

 

10.5                           Governing Law
and Venue.

 

(a)                                  This Agreement
shall be governed and construed in accordance with the laws of the State of New
York applicable to agreements made and not to be performed entirely within such
state, without regard to conflict of law principles.

 

(b)                                 The parties
agree irrevocably to submit to the exclusive jurisdiction of the federal courts
or, if no federal jurisdiction exists, the state courts, located in the City of
New York, Borough of Manhattan, for the purposes of any suit, action or other
proceeding brought by any party arising out of this Agreement and hereby waive,
and agree not to assert by way of motion, as a defense or otherwise, in any
such suit, action, or proceeding, any claim that he or it is not personally
subject to the jurisdiction of the above-named courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper, or that the provisions of this Agreement may
not be enforced in or by such courts.  In
addition, the parties agree to the waiver of a jury trial.

 

10.6                           Assignability
by the Company and the Executive.  This Agreement, and the rights and obligations
hereunder, may not be assigned by the Company or the Executive without written
consent signed by the other party; provided that the Company may assign the
Agreement to any successor that continues the business of the Company.

 

10.7                           Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original but both of which shall
constitute one and the same instrument.

 

10.8                           Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.

 

10.9                           Severability.  If any term, provision, covenant or
restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction of any foreign, federal, state, county or local
government or any other governmental, regulatory or administrative agency or
authority to be invalid, void, unenforceable or against public policy for any
reason, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected or impaired or invalidated.

 

16

 

The Executive acknowledges
that the restrictive covenants contained in Section 6 are a
condition of this Agreement and are reasonable and valid in temporal scope and
in all other respects.

 

10.10                     Judicial
Modification.  If any
court determines that any of the covenants in Section 6, or any
part of any of them, is invalid or unenforceable, the remainder of such
covenants and parts thereof shall not thereby be affected and shall be given
full effect, without regard to the invalid portion.  If any court determines that any of such
covenants, or any part thereof, is invalid or unenforceable because of the geographic
or temporal scope of such provision, such court shall reduce such scope to the
minimum extent necessary to make such covenants valid and enforceable.

 

10.11                     Legal Fees.  The Company will pay for or reimburse the
Executive for his costs reasonably incurred in retaining legal counsel to
review this Agreement and advise him in connection therewith prior to execution
to a maximum amount of fifteen thousand dollars ($15,000), subject to the
Executive’s submission of appropriate documentation of such expenses.

 

10.12                     Acknowledgement.  The Executive represents and acknowledges the
following:

 

(a)                                  He has
carefully read this Agreement in its entirety;

 

(b)                                 He understands
the terms and conditions contained herein;

 

(c)                                  He has reviewed
this Agreement with legal counsel of his own choosing and has not relied on any
statements made by the Company or its legal counsel as to the meaning of any
term or condition contained herein or in deciding whether to enter into this
Agreement; and

 

(d)                                 He is entering
into this Agreement knowingly and voluntarily.

 

[Remainder
of page intentionally left blank.]

 

17

 

IN WITNESS WHEREOF, the
parties hereto, intending to be legally bound hereby, have executed this
Agreement as of the day and year first above mentioned.

 

	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
  /s/ Husein Jafferjee

  	
   

  
	
   

  	
  Husein Jafferjee

  
	
   

  	
   

  
	
   

  	
  RAFAELLA APPAREL GROUP,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ George Kollitides

  	
   

  
	
   

  	
  Name: George Kollitides

  
	
   

  	
  Title: Authorized Person

  
				

 

18

 

EXHIBIT
A

 

TRANSACTION BONUS

 

The Executive shall receive
a cash payment equal to two and five-tenths percent (2.5%) of the Appreciated
Value in connection with Sale Transactions and two and five-tenths percent
(2.5%) of the Net Dividends paid other than in connection with a Sale
Transaction (in either case, a “Sale/Dividend Payment”), subject to
vesting as described below.  Any term not
defined herein shall have the meaning set forth in the employment agreement to
which this Exhibit A is attached (the “Employment Agreement”).

 

DEFINITIONS

 

1.                                       SALE
TRANSACTION

 

For purposes of this
Agreement, “Sale Transaction” shall mean:

 

(i)                                     a “Change in
Control”, as defined in the Employment Agreement; and

 

(ii)                                  other than in
connection with a “Change in Control”, (A) all transactions
(determined cumulatively from the Effective Date) by the common stockholders of
the Company on the Effective Date (the “Common Stockholders”) or any
affiliates of such Common Stockholders resulting in the sale of common
securities of the Company to one or more Third Parties (as defined in the
definition of “Change in Control”) and (B) the sale by the Company
of its common securities pursuant to an initial public offering.

 

2.                                       APPRECIATED
VALUE

 

For purposes of this
Agreement, “Appreciated Value” shall mean:

 

(i)                                     the “net
value” of all cash, securities and other consideration in any form paid by
a Third Party to the Company and/or the Common Stockholders in connection with
Sale Transactions (including the aggregate amount of any Dividends in
connection with or in contemplation of a Sale Transaction) and taking into
account the Net Dividends calculated in connection with any Dividends paid
after the Effective Date to the Common Stockholders or any affiliates of such
Common Stockholders; minus

 

(ii)                                  in the case of
a Sale Transaction in which the Company receives consideration from the Third
Party, the sum of (x) the amount of any debt or preferred stock (based
upon its aggregate liquidation preference plus any accrued and unpaid dividends
or other preferred return) assumed, acquired, redeemed or repaid (directly or
indirectly) in connection with the Sale Transaction, or which remains on the
Company’s financial statements at the time of the Sale Transaction and (y) $53,333,333
(the “Floor Amount”); or

 

19

 

(iii)                               in the case of
a Sale Transaction in which the Common Stockholders receive consideration from
the Third Party, the sum of (x) the amount of any preferred stock of the
class or series issued and outstanding on the Effective Date (based upon its
aggregate liquidation preference plus any accrued and unpaid dividends or other
preferred return) that is issued and outstanding as of the time of such Sale
Transaction and (y) the Floor Amount minus (A) the number of
shares of such preferred stock issued and outstanding as of the time of such
Sale Transaction multiplied by (B) the original issue price thereof.

 

Amounts paid into escrow and
contingent payments in connection with any Sale Transaction, if paid within
five (5) years of the consummation of any Sale Transaction, will be
included as part of the Appreciated Value if and when paid to the Common
Stockholders.  If the Appreciated Value
is a negative number, no Sale/Dividend Payment shall be due.

 

For the avoidance of doubt,
the deduction with respect to the Floor Amount shall be applied only once with
respect to the determination of the Appreciated Value and Net Dividends and
there shall be no duplication with respect to any preferred stock or debt.

 

3.                                       NET DIVIDENDS

 

For purposes of this
Agreement, “Net Dividends” shall mean:

 

(iv)                              the aggregate
value of all cash, securities and other consideration paid after the Effective
Date by the Company to the Common Stockholders or any affiliates of such Common
Stockholders (other than in connection with a Sale Transaction) in the form of
dividends, other distributions or as a repurchase of any common securities of
the Company (collectively, “Dividends”) and taking into account the “Appreciated
Value” calculated in connection with prior Sale Transactions; minus

 

(v)                                 the sum of (x) the
amount of any preferred stock of the class or series issued and outstanding on
the Effective Date (based upon its aggregate liquidation preference plus any
accrued and unpaid dividends or other preferred return) that is issued and
outstanding as of the time of such Dividend and (y) the Floor Amount minus
(A) the number of shares of such preferred stock issued and outstanding as
of the time of such Dividend multiplied by (B) the original issue price
thereof.

 

If Net Dividends is a
negative number, no Sale/Dividend Payment shall be due.

 

Calculations of Appreciated
Value or Net Dividends shall be made in connection with any Sale Transaction or
Dividend payment and shall be calculated, without duplication, on a cumulative
basis taking into account all Dividends and Sale Transactions from the
Effective Date.

 

For the avoidance of doubt,
the deduction with respect to the Floor Amount shall be applied only once with
respect to the determination of the Appreciated Value and Net Dividends and
there shall be no duplication with respect to any preferred stock or debt.

 

20

 

VESTING
AND PAYMENT OF TRANSACTION BONUS

 

1.                                       FULL VESTING

 

Notwithstanding any
provision contained herein to the contrary, in the event a Change in Control is
consummated prior to full vesting of the Sale/Dividend Payment and provided the
Executive’s employment under the Employment Agreement has not terminated as of
the date of such Change in Control, the Executive shall be one hundred percent
(100%) vested in the entire Sale/Dividend Payment, which shall be payable in a
lump sum within thirty (30) days of such Change in Control.

 

2.                                       VESTING
SCHEDULE

 

Provided that the Executive
remains an employee of the Company or its subsidiaries on each Vesting Date as
described below, the Executive shall vest in a percentage of the Sale/Dividend
Payment as indicated below:

 

	
  Vesting
  Date: On the following

  anniversaries of the Effective Date:

  	
   

  	
  The following percent of the Sale/Dividend

  Payment shall vest:

  	
   

  
	
  3
  month

  	
   

  	
  4

  	
  %

  
	
  6
  month

  	
   

  	
  4

  	
  %

  
	
  9
  month

  	
   

  	
  4

  	
  %

  
	
  12
  month

  	
   

  	
  5

  	
  %

  
	
  15
  month

  	
   

  	
  6

  	
  %

  
	
  18
  month

  	
   

  	
  6

  	
  %

  
	
  21
  month

  	
   

  	
  7

  	
  %

  
	
  24
  month

  	
   

  	
  7

  	
  %

  
	
  27
  month

  	
   

  	
  8

  	
  %

  
	
  30
  month

  	
   

  	
  9

  	
  %

  
	
  33
  month

  	
   

  	
  10

  	
  %

  
	
  36
  month

  	
   

  	
  10

  	
  %

  
	
  39
  month

  	
   

  	
  10

  	
  %

  
	
  42
  month

  	
   

  	
  10

  	
  %

  

 

3.                                       TERMINATIONS
AND FORFEITURES

 

If the Executive’s
employment with the Company and its subsidiaries terminates for any reason
prior to the consummation of a Change in Control, any then-unvested portion of
the Sale/Dividend Payment shall immediately be cancelled, and the Executive
(and the Executive’s 

 

21

 

estate, designated
beneficiary or other legal representative, as applicable) shall forfeit any
rights or interests in and with respect to any such unvested portion of the
Sale/Dividend Payment.

 

In the event any Sale
Transaction is consummated, or any Net Dividend is paid, on or prior to the
eighteen (18) month anniversary of the termination of the Executive’s
employment with the Company and its subsidiaries, the Executive shall be
entitled to the portion of the Sale/Dividend Payment that had vested on or
prior to the effective date of termination; provided, however,
that if the Executive is seventy percent (70%) or more vested, the period shall
be extended to twenty-four (24) months. 
Such amount shall be payable to the Executive in a lump sum within sixty
(60) days of the date of such Sale Transaction or Net Dividend payment.

 

In the event any Sale
Transaction is consummated, or any Net Dividend is paid, after such eighteen
(18) month or twenty-four (24) month anniversary, as applicable, any rights or
interests in the entire Sale/Dividend Payment (whether vested or unvested)
shall be cancelled and the Executive (and the Executive’s estate, designated
beneficiary or other legal representative, as applicable) shall forfeit any
rights or interests in and with respect to the entire Sale/Dividend Payment.

 

Notwithstanding anything
herein to the contrary, the Board may, in its sole discretion, accelerate the
vesting of any portion of the unvested portion of a Sale/Dividend Payment at
any time.

 

22

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00135-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00135-of-00352.parquet"}]]