Document:

Contract Agreement

    

      EMPLOYMENT
        AGREEMENT

       

      This
        Employment Agreement (this “Agreement”)
        is
        entered into as of this 5th
        day of
        June 2006, by and between The Bombay Company, Inc., a Delaware corporation
        (the
“Company”),
        and
        David B. Stewart (the “Executive”).

       

      RECITALS

       

      WHEREAS,
        the Company is engaged, directly or indirectly, in the business of designing,
        sourcing and marketing home accessories, wall décor and furniture (the
“Business”);

       

      WHEREAS,
        the Company believes that it would benefit from the Executive’s skill,
        experience and background, and wishes to employ the Executive as its Chief
        Executive Officer;

       

      WHEREAS,
        the Company expects to elect the Executive to serve as a Director of the
        Company
        at the next meeting of the Board of Directors following the Effective Date;
        and

       

      WHEREAS,
        the parties desire by this Agreement to set forth in greater detail the terms
        and conditions of the employment relationship between the Company and the
        Executive.

       

      NOW,
        THEREFORE, in consideration of the foregoing and the mutual covenants herein
        set
        forth, and for other good and valuable consideration, the Company and the
        Executive hereby agree as follows:

       

      1.  Employment
        of Executive.

       

      (a)  General
        Duties.
        The
        Company hereby employs the Executive as its Chief Executive Officer, and
        the
        Executive accepts such employment, on the terms and subject to the conditions
        provided in this Agreement. As Chief Executive Officer, the Executive shall
        be
        directly or indirectly responsible for all operations of the Company, and
        every
        employee of the Company shall report, directly or indirectly, to the Executive.
        The Executive shall report solely to the Company’s Board of Directors (the
“Board”)
        and
        shall devote substantially all of his professional time, efforts, attention,
        energy and skill to performing the duties of Chief Executive Officer of the
        Company. As part of these duties, the Executive may serve on the Board of
        Directors of subsidiaries of the Company as may be requested by the Company
        from
        time to time. Executive’s primary place of employment shall be the Company’s
        executive offices in Fort Worth, Texas, or such other place as such executive
        offices may be moved with the Executive’s advance written consent. Provided that
        such activities do not violate any term or condition of this Agreement, or
        materially interfere with the performance of his duties hereunder, nothing
        herein shall prohibit the Executive from (a) participating in other business
        activities approved in advance by the Board in accordance with any terms
        and
        conditions of such approval, (b) engaging in educational, charitable,
        civic, fraternal or trade group activities or (c) investing his personal
        assets
        in the Company or other entities or business ventures, subject to any applicable
        legal requirements and any policies of the Company applicable to all executive
        personnel of the Company and members of the Board. All communications and
        notices that the Executive desires to give to the Board in his capacity as
        an
        officer of the Company shall be given to the non-executive Chairman or to
        the
“Lead
        Director”
who
        is
        designated from time to time by the entire Board.

       

      
        
           

        

        
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      (b)  D&O
        Insurance.
        The
        Company shall use reasonable best efforts to provide directors’ and officers’
liability insurance coverage for the benefit of the Executive and his estate
        at
        all times during the “Employment Term” (defined below) on the same terms and in
        the same amount as the Company then provides for its other directors and
        executive officers. Upon the expiration of the Employment Term and for a
        period
        thereafter equal to the shorter of (i) six (6) years or (ii) the expiration
        of
        the applicable statute of limitations (the “Post-Termination
        Coverage Period”),
        the
        Company will use reasonable best efforts to maintain directors’ and officers’
liability insurance coverage for its directors and executive officers in
        a
        manner that will continue to provide coverage for the Executive’s acts and
        omissions during the Employment Term. Notwithstanding the foregoing sentences
        of
        this Section 1(b), from and after the occurrence of a ‘Change of Control” (as
        defined below), the Company shall be obligated to use best efforts to maintain
        directors’ and officers’ liability insurance coverage during the Employment Term
        and the Post-Termination Coverage Period on terms and in amounts substantially
        similar to those maintained by the Company immediately prior to the Change
        of
        Control.

       

      2.  Employment
        Term.
        Subject
        to the terms and conditions of this Agreement, the Executive’s term of
        employment under this Agreement (the “Employment
        Term”)
        shall
        commence on the date hereof (the “Effective
        Date”)
        and
        continue until June 5, 2009. Notwithstanding the foregoing, the Employment
        Term and the Executive’s employment hereunder may be terminated in accordance
        with the provisions of Section 4.

       

      3.  Compensation.
        As
        compensation for performing the services required by this Agreement, and
        during
        the Employment Term, the Executive shall be compensated as follows:

       

      (a)  Base
        Compensation.
        The
        Company shall pay to the Executive as base compensation an annual salary
        (“Base
        Compensation”)
        of Six
        Hundred Thousand Dollars ($600,000). Subject to subparagraph (b) below, the
        Base Compensation shall be payable in accordance with the general policies
        and
        procedures for payment of salaries to senior executive personnel of the Company
        as implemented by the Board, in substantially equal installments, subject
        to
        withholding for applicable federal, state, local and foreign taxes. Increases
        in
        Base Compensation, if any, shall be determined by the Compensation and Human
        Resources Committee of the Board (the “Compensation
        Committee”)
        based
        on an annual review of the Executive’s performance to be conducted after
        January 1 and prior to June 3 of each year during the Employment Term,
        subject to approval by the Board. Upon the completion of each such review,
        but
        no later than June 3 of each year, the Company shall provide the Executive
        with a written notice that sets forth the amount of Base Compensation to
        be paid
        to the Executive during the twelve-month period that begins on June 3 of
        such year.

       

      (b)  Cash
        Incentive Compensation.
        At the
        end of each fiscal year of the Company during the Employment Term and subject
        to
        the conditions specified herein, the Executive shall be eligible to receive
        a
        cash bonus as incentive compensation in addition to his Base Compensation
        (the
“Cash
        Incentive Compensation”).
        The
        Executive’s target Cash Incentive Compensation shall be equal to seventy-five
        percent (75%) of his Base Compensation for each such fiscal year and shall
        be
        determined pursuant to the Executive Performance Bonus Grid for such fiscal
        year. “Executive
        Performance Bonus Grid”
means
        the criteria established for each fiscal year by the Compensation Committee
        for
        all executive officers of the Company that specifies the percentage of each
        executive’s base salary that is eligible to be paid to such executive as an
        incentive bonus upon the Company’s achievement of certain profitability
        thresholds for such fiscal year. In no event shall the amount of Cash Incentive
        Compensation paid to Executive for any fiscal year exceed two hundred percent
        (200%) of his target Cash Incentive Compensation for such year.

       

      
        
           

        

        
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      Payment
        of the Cash Incentive Compensation for each fiscal year will be made in
        accordance with the general policies and procedures for payment of incentive
        compensation to senior executive personnel of the Company. For the period
        from
        the Effective Date through February 3, 2007 (the last day of the Company’s 2007
        fiscal year), the target Cash Incentive Compensation shall be pro-rated at
        $262,500; provided,
        that
        $131,250 of such pro-rated amount (the “Fiscal
        2007 Incentive Guarantee”)
        shall
        not be subject to performance goals or similar criteria.

       

      (c)  Equity-Based
        Incentive Compensation.
        On the
        Effective Date, the Company will grant to the Executive options to purchase
        550,000 shares of the Company’s common stock, par value $1.00 per share
        (“Common
        Stock”),
        with
        an exercise price per share equal to the closing sale price of a share of
        Common
        Stock as quoted on the New York Stock Exchange on such date (the “Option
        Award”)
        and a
        three-year vesting period. The terms and conditions relating to the Option
        Award
        are set forth in the form of stock option agreement attached hereto as
Exhibit A
        (the
“Option
        Award Agreement”).

       

      (d)  Employee
        Benefits: Fringe Benefits.
        During
        the Employment Term, the Executive and his eligible dependents (where
        applicable) shall have the right to participate in each retirement, pension,
        insurance, health and other benefit plan or program that has been or is
        hereafter adopted by the Company (or in which the Company participates)
        according to the terms of such plan or program with all the benefits, rights
        and
        privileges as are generally enjoyed by senior executive personnel of the
        Company; provided,
        however,
        that no
        policy adopted by the Company or the Board for the benefit of executives
        who do
        not have employment agreements (for example, the Bombay Executive Management
        Severance Policy) shall apply to the Executive in a manner that would conflict
        with any term in this Agreement, or expand on or increase any benefit
        specifically granted in this Agreement. The Executive also shall be entitled
        to
        all fringe benefits, if any, that generally are enjoyed by senior executive
        personnel of the Company. Regardless of whether such benefits are available
        to
        other senior executives, the Executive shall be entitled to the following
        benefits at the expense of the Company:

       

      (1)  supplemental
        long-term disability insurance that, collectively with the Company’s other
        disability insurance plans, provides the Executive with an annual benefit
        equal
        to sixty percent (60%) of the Executive’s Base Compensation and target Cash
        Incentive Compensation in effect on the date that he becomes disabled;
provided,
        that
        such coverage shall not commence until sixty (60) days after the Effective
        Date;

       

      (2)  a
        supplemental life insurance policy that, collectively with the Company’s other
        life insurance policies, provides the Executive with term life insurance
        coverage in an amount equal to one and one-half (1.5) times his Base
        Compensation and target Cash Incentive Compensation in effect at any time
        during
        the Employment Term;

       

      
        
           

        

        
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      (3)  annual
        physical medical examination and evaluation the total expense of which shall
        not
        exceed $5,000 per year;

       

      (4)  first
        class ticketing on all air travel for Business purposes;

       

      (5)  a
        one-time reimbursement for the Executive’s actual, out-of-pocket legal fees and
        expenses incurred in the preparation, review and negotiation of this
        Agreement;

       

      (6)  a
        one-time reimbursement for the reasonable, documented out-of-pocket costs
        incurred by the Executive in connection with relocating his primary residence
        from Toronto, Ontario to the Dallas/Fort Worth area, including (i) real estate
        commissions of up to six percent (6%) on the sale of the Executive’s current
        Toronto residence, (ii) packing and moving costs, (iii) up to three (3) months
        temporary apartment rent, utility expenses and automobile rental in the
        Dallas/Fort Worth area, and (iv) up to three (3) trips, with the Executive’s
        spouse, to the Dallas/Fort Worth area to purchase a home in that area, including
        airfare first class, hotel, car rental and meals; provided,
        that
        the Executive shall submit to the Company’s Lead Director, in advance, any such
        expense (or series of related expenses) that will exceed $10,000, and
        reimbursement of such expense shall be subject to the prior approval of the
        Lead
        Director (which approval shall not be withheld if such expense is reasonable
        and
        within the parameters described in this paragraph (6)). The Executive shall
        use
        his reasonable best efforts (taking into account his duties to the Company
        pursuant to this Agreement) to complete his move and establish a primary
        residence in the Dallas/Fort Worth area on or before September 1, 2006. The
        Company also shall pay to the Executive an additional, one-time amount equal
        to
        all federal, state, local and foreign income and employment tax liability
        that
        the Executive owes as a result of the Company’s reimbursement of the relocation
        and moving expenses described in this paragraph (6), to substantially the
        effect
        that the Executive shall receive the benefit of the relocation and moving
        expense reimbursements as if there were no federal, state, local and foreign
        income and employment tax for such reimbursements; and

       

      (7)  a
        one-time reimbursement for the reasonable, documented out-of-pocket costs
        incurred by the Executive in connection with his making a reasonable number
        of
        personal trips to Canada between the Effective Date and the earlier of September
        1, 2006 or the date on which the Executive actually establishes his primary
        residence in the Dallas/Fort Worth area, including first class ticketing
        on air
        travel.

       

      (e)  Vacation;
        Sick Leave; Holidays; Leaves of Absence.
        The
        Executive shall be entitled to four (4) weeks of paid vacation leave each
        year
        on dates mutually agreed upon by the Company and the Executive. The Executive
        also shall be entitled to the same paid holidays provided to the other employees
        of the Company. In addition, the Executive may be granted leaves of absence
        with
        pay for such valid and legitimate reasons as the Board in its sole and absolute
        discretion may determine or as required by law.

       

      
        
           

        

        
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      (f)  Expenses.
        The
        Executive shall be entitled to receive reimbursement for all reasonable and
        necessary expenses incurred by him in connection with the performance of
        his
        Company related duties under this Agreement, subject to the Executive’s
        compliance in all material respects with the Company’s reasonable policies for
        recording such expenses and for submitting them for reimbursement.

       

      (g)  Taxes.
        Except
        as specifically provided for herein, the Executive shall be responsible for
        payment of all federal, state, and local income and employment taxes, any
        applicable excise taxes, and any other government assessments owing by the
        Executive for all benefits received pursuant to this Agreement. All payments
        required to be made by the Company hereunder and all other benefits provided
        to
        the Executive hereunder shall be subject to the withholding of such amounts
        relating to taxes and other government assessments as the Company may reasonably
        determine it should withhold pursuant to any applicable law, rule or
        regulation.

       

      4.  Termination
        and Termination Benefits.

       

      (a)  Termination
        by the Company.

       

      (1)  For
        Cause.
        The
        Company may terminate the Employment Term and the Executive’s employment under
        this Agreement for “Cause” (as defined below) by written notice to the
        Executive. The Executive’s employment hereunder shall terminate immediately upon
        his receipt of such notice unless the Company specifies a later effective
        date
        of termination therein. In the event of such a termination, the Company shall
        provide the Executive (A) the Base Compensation earned but not paid to the
        Executive prior to the effective date of termination, (B) the benefits
        described in Section 3(d) through the effective date of termination, (C) a
        cash payment in lieu of the Executive’s accrued vacation leave provided for in
        Section 3(e) that is unused as of the effective date of termination,
        (D) reimbursement pursuant to Section 3(f) and then only for expenses
        incurred up to the effective date of termination and (E) any unpaid Cash
        Incentive Compensation for a prior fiscal year of the Company. In addition,
        options for Common Stock which have vested in favor of the Executive prior
        to
        the date of termination shall remain exercisable by the Executive or his
        estate,
        as applicable, in whole or in part until the earlier of (i) the date that
        is
        ninety (90) days after termination of employment (or such later date as is
        set
        forth in any applicable stock option agreement) or (ii) the last day of the
        original term of the option. The payments and benefits described in (A)-(E)
        of
        this paragraph shall be referred to hereinafter as the “Accrued
        Obligations”.
        Except
        for the foregoing Accrued Obligations, the Company shall have no further
        obligations or liability to the Executive under this Agreement.

       

      For
        purposes of this Agreement, “Cause”
means
        (1) the Executive’s substantial failure to perform his duties under this
        Agreement if not remedied in all material respects by the Executive within
        thirty (30) days after receipt of a written notice from the Company specifying
        such failure in reasonable detail, (2) fraud, misconduct or neglect by the
        Executive that causes or is likely to cause material harm to the Company
        (such
        misconduct may include, without limitation, insobriety at the workplace during
        working hours or the use of illegal drugs), (3) any failure to follow
        directions of the Board that are consistent with the Executive’s duties under
        this Agreement that results in material harm to the Company, if not remedied
        in
        all material respects by the Executive within ten (10) days after receipt
        of a
        written notice from the Board specifying such failure in reasonable detail,
        (4)
        the Executive’s conviction of, or entry of a pleading of guilty or nolo
        contendre to, any crime involving moral turpitude, or the entry of an order
        duly
        issued by any federal or state regulatory agency having jurisdiction in the
        matter permanently prohibiting the Executive from participating in the conduct
        of the affairs of the Company or (5) any other breach of this Agreement by
        the
        Executive that is not remedied in all material respects within 30 days after
        receipt of written notice from the Company specifying such breach in reasonable
        detail.

       

      
        
           

        

        
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      (2)  Without
        Cause.
        The
        Company may terminate the Employment Term and the Executive’s employment under
        this Agreement without Cause by written notice to the Executive. The Executive’s
        employment hereunder shall terminate immediately upon the receipt of such
        notice
        unless the Company specifies a later effective date of termination therein.
        If
        the Company terminates the Executive’s employment without Cause, subject to
        Sections 4(a)(2)(D) and 4(a)(2)(E) below:

       

      (A)  The
        Company shall pay the Executive, or his estate, as applicable, a base severance
        equal to eighteen (18) months of the Executive’s Base Compensation (as in effect
        on the date of such termination), payable periodically (subject to Section
        9(m)
        below) in substantially equal installments over a twelve (12) month period
        immediately following such termination (the “Severance
        Payment Period”),
        provided, however, that any amounts paid on or after the first day of the
        seventh month of the Severance Payment Period shall be subject to offset
        by any
        earnings resulting from the Executive’s employment by another employer during
        such period. For purposes of clarity, any amounts payable pursuant to this
        paragraph during the first six months of the Severance Pay Period shall not
        be
        subject to offset by any earnings resulting from the Executive’s employment by
        another employer during such period. Any amounts payable pursuant to this
        paragraph shall be paid in accordance with the Company’s general policies and
        procedures for payment of compensation to senior executive personnel of the
        Company as implemented by the Board and subject to withholding for applicable
        federal, state, local and foreign taxes.

       

      (B)  Subject
        to the Company’s achievement of the applicable performance objectives and at the
        time that the Company’s other senior executives receive their incentive bonus
        payments for the fiscal year in which the Executive’s employment under this
        Agreement was terminated, the Executive shall be eligible to receive an
        additional severance payment equal to the amount of the Cash Incentive
        Compensation, if any, that would have been paid to the Executive under the
        provisions of Section
        3(g)
        hereof
        for the fiscal year of the Executive’s termination, prorated based on the number
        of days in such fiscal year during which the Executive served as the Company’s
        Chief Executive Officer. Such amount shall be paid to the Executive in
        accordance with the general policies and procedures for payment of compensation
        to senior executive personnel of the Company as implemented by the Board,
        subject to withholding for applicable federal, state, local and foreign taxes.
        Notwithstanding the above, the amount paid pursuant to this paragraph (B)
        shall
        be no less than the Fiscal 2007 Incentive Guarantee if such termination occurs
        prior to the Executive’s receipt of the Cash Incentive Compensation for the 2007
        fiscal year.

       

      (C)  The
        Company shall continue to provide for eighteen (18) months the same level
        of
        medical, vision and dental insurance benefits (collectively, the “Welfare
        Benefits”)
        for
        the Executive and the Executive’s eligible dependents in the same manner as the
        Company provided for them at the time of termination of the Executive’s
        employment.

       

      
        
           

        

        
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      (D)  The
        Company shall pay and provide the Executive the Accrued
        Obligations.

       

      (E)  Contemporaneously
        with such termination, the unvested stock options for Common Stock and any
        shares of restricted stock, restricted stock units and other equity incentives
        previously granted to the Executive by the Company shall become vested,
        nonforfeitable and exercisable in accordance with the provisions, if any,
        concerning vesting and exercisability in any applicable plan or agreement
        relating to such grants. The Executive or his estate (as applicable) may
        continue to exercise all or any part of the vested stock options for Common
        Stock held immediately following termination until the earlier of (i) the
        date
        that is six (6) months thereafter (or such longer period as is set forth
        in any
        applicable stock option agreement) or (ii) the last day of the original term
        of
        the option.

       

      (F)  Notwithstanding
        anything contained herein to the contrary, if the Executive materially violates
        and fails to timely cure the provisions of Sections 7 or 8 of this Agreement
        (the “Restrictive
        Covenants”)
        at any
        time while the Company is obligated to make severance payments or provide
        severance benefits under this Section 4(a), the Company may send the Executive
        written notice that specifies in reasonable detail the circumstances surrounding
        the material violation. If the Executive does not cease the activities that
        are
        materially violating the Restrictive Covenants within ten (10) days following
        the date of receipt of the Company’s written notice to the Executive, then, in
        addition to any and all other rights that the Company may have at law or
        in
        equity, the Company may permanently cancel and terminate such severance payments
        and benefits provided for in this Section 4(a)(2) that then remain to be
        paid or
        provided.

       

      (G)  The
        Executive agrees that the Company’s obligation to pay severance pay, if any,
        will arise only after the Executive’s employment has terminated and only if the
        Executive signs and returns a general release and waiver of all claims the
        Executive may have against the Company and its directors, officers, subsidiaries
        and affiliates, except as to (i) matters covered by provisions of this Agreement
        that expressly survive the termination of the Employment Term and the
        Executive’s employment (including rights to enforce this Agreement), (ii) rights
        to indemnification and insurance under the Charter, By-Laws and directors
        and
        officers insurance policies maintained by the Company, and (iii) rights to
        which
        the Executive is entitled by virtue of his participation in the employee
        benefit
        plans, policies and arrangements of the Company. The Executive further
        acknowledges and agrees that severance pay, if any, constitutes consideration
        for the Executive’s release of claims at the time of termination.  In the
        event the Executive declines to sign the release, he shall not be entitled
        to
        any severance, and the Company will have no further liability or obligation
        to
        the Executive under this Agreement or in connection with his employment or
        termination.

       

      
        
           

        

        
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      (3)  Disability.
        If due
        to illness, physical or mental disability, or other incapacity which cannot
        be
        reasonably accommodated, the Executive shall fail, for a total of any ninety
        (90) days or more within any period of twelve (12) consecutive months, to
        perform the duties required by this Agreement, the Board may terminate the
        Employment Term and Executive’s employment under this Agreement; provided,
        however,
        that
        prior to any such termination, the Company shall have given the Executive
        at
        least thirty (30) days’ advance written notice that it is terminating the
        Executive’s employment due to disability, and the Executive shall not have
        returned to full-time employment by the thirtieth (30th)
        day
        after such notice. In such event, the Company shall provide the Executive
        the
        Accrued Obligations and the Executive shall not be entitled to any other
        severance compensation or payments of this Agreement. The Executive or his
        estate, as applicable, shall have until the date that is twelve (12) months
        following such termination (or such later date as is set forth in any applicable
        stock option agreement) or, if earlier, the last day of the original term
        of the
        option, to exercise all or any part of vested stock options for Common Stock
        that are held by the Executive on the date of termination. 

       

      (b)  Termination
        by the Executive.

       

      (1)  Resignation
        Without Company Breach.
        The
        Executive may voluntarily terminate the Employment Term and his employment
        hereunder upon ninety (90) days’ prior written notice to the Company. Such a
        termination shall be effective ninety (90) days after the delivery of such
        notice unless the Executive and the Company agree in writing to another
        effective date; provided,
        that
        the Company may immediately terminate the Executive’s service upon payment of
        the Base Compensation for any remainder of such notice period. In the event
        of
        such a termination, the Company shall pay and provide to the Executive the
        Accrued Obligations, and the Company shall thereafter have no further obligation
        or liability to the Executive under this Agreement (other than with respect
        to
        options for Common Stock which have vested in favor of the Executive prior
        to
        the date of termination, which shall remain exercisable by the Executive
        or his
        estate, as applicable, in whole or in part until the earlier of (i) the date
        that is ninety (90) days after termination of employment (or such later date
        as
        is set forth in any applicable stock option agreement) or (ii) the last day
        of
        the original term of the option.

       

      (2)  Resignation
        Upon Company Breach.
        Upon
        the occurrence of a Company Breach (defined below), the Executive may provide
        the Company with a written notice that specifies in reasonable detail the
        circumstances surrounding the alleged Company Breach. If such Company Breach
        is
        not cured within thirty (30) days of the Company’s receipt of such notice, then
        the Executive may terminate his employment hereunder by written notice to
        the
        Company. The Executive’s employment hereunder shall terminate immediately upon
        the delivery of such termination notice unless the Executive specifies a
        later
        effective date of termination therein. Upon such termination, the Executive
        shall, subject to the provisions of Sections 4(a)(2)(F) and (G) hereof, be
        entitled to receive the payments and benefits specified in Sections
        4(a)(2)(A)-(D) hereof.

       

      For
        the
        purposes of this Agreement, “Company
        Breach”
means:
        (i) a change in the Executive’s duties or responsibilities as an officer of the
        Company that represents a reduction of the duties or responsibilities as
        in
        effect immediately prior thereto; (ii) a change by the Board in the duties
        or
        responsibilities of other senior executive officers of the Company that have
        the
        effect of precluding the Executive from effectively performing his duties
        and
        responsibilities; (iii) a material reduction in the Executive’s Base
        Compensation without the Executive’s consent (other than a reduction that is
        proportionately comparable to reductions implemented by the Board, and approved
        or recommended by the Executive, for substantially all the senior executives
        of
        the Company); (iv) the Company requiring the Executive to be based at any
        place
        which either (A) is outside a fifty (50) mile radius of the Company’s Fort
        Worth, Texas headquarters location as in use on the date of this Agreement,
        except for reasonable travel on behalf of the Company or (B) increases the
        Executive’s commute by more than thirty-five (35) miles; (iv) the failure of the
        Company to nominate the Executive to serve as a director on the Board; or
        (v)
        any material breach by the Company of any provision of this Agreement. An
        action
        or inaction by the Company shall constitute a Company Breach only if the
        Company
        does not cure such alleged Company Breach within thirty (30) days after the
        Executive delivers written notice to the Company declaring that an action
        or
        inaction of the Company, if not so cured, will constitute a Company Breach
        hereunder. 

       

      
        
           

        

        
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      (c)  Additional
        Effects of Termination.
        The
        Executive’s obligations and liabilities to the Company under this Agreement
        shall cease as of the effective date of any termination pursuant to Sections
        4(a) or 4(b), except that his obligations under the Restrictive Covenants
        shall
        survive and continue following any such termination.

       

      (d)  Death.
        Notwithstanding any other provision of this Agreement, this Agreement shall
        terminate on the date of the Executive’s death. In such event, the Executive’s
        estate shall be paid the Executive’s Base Compensation earned but not paid prior
        to the date of his death, plus any Cash Incentive Compensation earned but
        not
        paid prior to his death. In addition, upon the death of the Executive, the
        Company shall (A) pay and provide the Executive’s estate the Accrued Obligations
        and (B) continue to provide for 90 days, at the Company’s expense, the same
        level of health insurance benefits for the Executive’s eligible dependents as
        the Company provided for them at the time of the Executive’s death.

       

      (e)  Expiration.
        Expiration of this Agreement in accordance with its terms on the three year
        anniversary shall not be, and shall not be deemed to be, a termination by
        the
        Company.

       

      (f)  No
        Duty to Mitigate.
        In the
        event of any termination of the Executive’s employment hereunder, the Executive
        shall be under no obligation to seek other employment or otherwise mitigate
        the
        obligations of the Company under this Agreement.

       

      (g)  Board
        Seat.
        Upon
        the termination of the Executive’s employment for any reason, if the Executive
        serves on the Board of the Company or any “Affiliate” (as defined below), or
        holds a position as an officer or committee member of the Company or any
        Affiliate, at the time of such termination, the Executive shall promptly
        resign
        from all such positions by delivery of written notice to such
        effect.

       

      5.  Change
        of Control.

       

      (a)  Definitions.
        For the
        purposes of this Agreement:

       

      “Affiliate”
shall
        have the meaning given in Rule 405 promulgated under the Securities Act of
        1933,
        as amended.

       

      “Change
        of Control”
shall
        mean any of the following:

       

      (i)  the
        acquisition, other than from the Company, by any individual, entity or group
        (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
        Act of 1934 (the “Exchange
        Act”))
        of
        beneficial ownership of 20% or more of either the then outstanding shares
        of
        Common Stock of the Company or the combined voting power of the then outstanding
        voting securities of the Company entitled to vote generally either in the
        election of directors of the Company or for the termination of the chief
        executive officer of the Company; provided,
        however,
        that
        any acquisition by the Company or any of its subsidiaries, or any employee
        benefit plan (or related trust) of the Company or its subsidiaries, or any
        corporation with respect to which following such acquisition, more than fifty
        percent (50%) of, respectively, the then outstanding shares of common stock
        of
        such corporation and the combined voting power of the then outstanding voting
        securities of such corporation entitled to vote generally in the election
        of
        directors is then beneficially owned, directly or indirectly, by all or
        substantially all of the individuals and entities who were the beneficial
        owners, respectively, of the Common Stock and voting securities of the Company
        immediately prior to such acquisition in substantially the same proportion
        as
        their ownership, immediately prior to such acquisition, of the then outstanding
        shares of Common Stock of the Company or the combined voting power of the
        then
        outstanding voting securities of the Company entitled to vote generally in
        the
        election of directors, as the case may be, shall not constitute a Change
        of
        Control;

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (ii)  individuals
        who, as of the Effective Date, constitute the Board (the “Incumbent
        Board”)
        cease
        for any reason to constitute at least a majority of the Board, provided that
        any
        individual becoming a director subsequent to such date whose election, or
        nomination for election by the Company’s shareholders, was approved by a vote of
        at least a majority of the directors then comprising the Incumbent Board
        shall
        be considered as though such individual were a member of the Incumbent Board,
        but excluding, for this purpose, any such individual whose initial assumption
        of
        office is in connection with an actual or threatened election contest relating
        to the election of the directors of the Company; or

       

      (iii)  approval
        by the shareholders of the Company of a reorganization, merger or consolidation
        of the Company, in each case, with respect to which the individuals and entities
        who were the respective beneficial owners of the Common Stock and voting
        securities of the Company immediately prior to such reorganization, merger
        or
        consolidation do not, following such reorganization, merger or consolidation,
        beneficially own, directly or indirectly, more than fifty percent (50%) of,
        respectively, the then outstanding shares of Common Stock and the combined
        voting power of the then outstanding voting securities entitled to vote
        generally in the election of directors, as the case may be, of the corporation
        resulting from such reorganization, merger or consolidation, or a complete
        liquidation or dissolution of the Company or of the sale or other disposition
        of
        all or substantially all of the assets of the Company.

       

      “Change
        of Control Amount”
shall
        mean an amount equal to two (2) times the sum of (i) the Base Compensation
        in
        effect immediately prior to a Change of Control plus (ii) the average of
        the
        Cash Incentive Compensation payment for the two (2) years prior to a Change
        of
        Control, or, if the Executive has been employed by the Company for less than
        two
        (2) years at the time of the Change of Control, (A) the amount of the
        Executive’s last Cash Incentive Compensation payment, if at least one such
        payment has been made, or (B) the target Cash Incentive Compensation for
        the
        year in which the Change of Control occurs (without regard to the second
        paragraph of Section 3(b)), if at least one such payment has not been
        made.

       

      (b)  Change
        of Control Benefit.
        If (i)
        a Change of Control has occurred and (ii) within two (2) years thereafter,
        the
        Executive’s employment with the Company terminates for any reason other than (1)
        termination by the Company for Cause or (2) termination by the Executive
        for other than Company Breach, then the Company shall pay to the Executive
        within seven (7) days following such termination a lump sum cash payment
        equal
        to the Change of Control Amount. The receipt of such Change of Control Amount
        shall be in lieu of any right of payment that the Executive may have in
        connection with such termination of employment whether pursuant to Section
        4(a)(2)(A) (whether in connection with the Executive’s termination of employment
        by the Company without Cause or his resignation due to Company Breach).
        Additionally, if the Company becomes obligated to pay the Change of Control
        Amount as specified herein, then (A) all unvested options for Common Stock
        held
        by the Executive shall immediately vest, and all previously vested and newly
        vested stock options then held by the Executive shall remain exercisable
        by the
        Executive or his estate (in whole or part) at any time and from time to time
        for
        a period of one (1) year thereafter (or, if earlier, until the last day of
        the
        original term of the option), (B) all shares of restricted stock, restricted
        stock units and other equity incentives shall become fully vested,
        nonforfeitable and immediately paid and (C) the surviving corporation (or
        its
        successor) shall continue to provide, for a period of twenty-four (24) months,
        the Executive (and his dependents as in effect on the date of the Change
        of
        Control) with the Welfare Benefits. Notwithstanding the foregoing provisions
        of
        this Section 5(b), if, within the six (6) month period immediately prior
        to the
        Change of Control, the Executive’s employment with the Company is terminated by
        the Company for any reason other than (x) termination by the Company for
        Cause
        or (y) termination by the Executive for other than Company Breach, then for
        purposes of this Agreement, such termination shall be deemed to have occurred
        immediately following a Change of Control and the Executive shall be entitled
        to
        the payments and benefits described in this Section 5(b).

       

      6.  Certain
        Change of Control Benefit Adjustments.
        Notwithstanding anything in this Agreement to the contrary, in the event
        it
        shall be determined that any payment or distribution made, or benefit provided,
        by the Company to or for the benefit of the Executive (whether paid or payable
        or distributed or distributable or provided pursuant to the terms hereof
        or
        otherwise) would constitute a “parachute payment” as defined in Section 280G of
        the Internal Revenue Code of 1986, as amended (the “Code”), then the severance
        payment payable pursuant to this Agreement, at the election of the Executive,
        may be reduced so that the aggregate present value of all payments in the
        nature
        of compensation to (or for the benefit of) the Executive which are contingent
        on
        a change of control (as defined in Code Section 280G(b)(2)(A)) is One Dollar
        ($1.00) less than the amount which the Executive could receive without being
        considered to have received any parachute payment (the amount of this reduction
        in the severance payment is referred to herein as the “Excess Amount”). The
        determination of the amount of any reduction required to meet the dollar
        threshold described in the preceding sentence shall be made by an independent
        accounting firm (other than the Company’s independent accounting firm) selected
        by the Company and acceptable to the Executive, and such determination shall
        be
        conclusive and binding on the parties hereto.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      7.  Confidential
        Information.

       

      (a)  Acknowledgment.
        The
        Company shall provide the Executive with confidential proprietary information
        of
        the Company, including information regarding costs, profits, markets, sales,
        products, key personnel, pricing policies, operational methods, other business
        methods, plans for future developments, and other information not readily
        available to the public, the disclosure of which to third parties would in
        each
        case have a material adverse effect on the Company’s Business operations
        (“Confidential
        Information”).

       

      (b)  Agreement
        Regarding Confidentiality.
        The
        Executive will keep secret, during and after the termination of his employment,
        all Confidential Information and will not use or disclose Confidential
        Information to anyone outside of the Company other than in the course of
        performance of his duties under this Agreement, except that (i) the Executive
        shall have no such obligation to the extent Confidential Information is or
        becomes publicly known other than as a result of the Executive’s breach of his
        obligations hereunder, and (ii) the Executive may disclose such matters (A)
        to
        his counsel to the extent reasonably related to, and in the course of, their
        representation of him and (B) to the extent required by applicable laws,
        governmental regulations or judicial or regulatory processes.

       

      (c)  Return
        of Records.
        The
        Executive will deliver promptly to the Company on termination of his employment
        by the Company, or at any other time the Board may so request, all memoranda,
        notes, records, reports and other documents (and all copies thereof) relating
        to
        the Company’s Business that he obtained while employed by, or otherwise serving
        or acting on behalf of, the Company and that he may then possess or have
        under
        his control; provided that the Executive may retain a copy of his personal
        contact list. In the event the Executive fails to comply with his obligations
        under this Section 7(c), the Company shall be entitled to injunctive relief
        enforcing such obligations to the extent reasonably necessary to protect
        the
        Company’s interests.

       

      8.  Noncompetition.

       

      (a)  In
        exchange for the Company’s agreement to provide Confidential Information to the
        Executive, during the Executive’s employment under this Agreement and for a
        period of eighteen (18) months after the Executive’s termination, the
        Executive will not, without the prior written approval of a majority of the
        members of the Board (not including the Executive), (i) engage directly or
        indirectly in, or become employed by, serve as an agent or consultant to
        or
        become an officer, director, partner, principal or stockholder of any
        association, group, partnership, person, corporation or other entity which
        is
        engaged in a business in the United States or Canada that (A) is located
        in a
        region of the United States or Canada in which the Company conducts its Business
        and (B) competes with the Business, or (ii) directly or indirectly seek,
        solicit
        or accept for employment or retention as an independent contractor any person
        who (X) was, at the time of the Executive’s termination of employment or
        during the three (3) month period prior thereto, employed by the Company
        or
        retained by the Company as an independent contractor who performed a substantial
        majority of his, her or its services for the Company, and (Y) had a level
        of seniority equivalent to at least the seniority held by a district sales
        manager of the Company or (iii) directly or indirectly seek, solicit or accept
        the business of any person, partnership, corporation, entity, association
        or
        group of any kind that was (1) a customer of the Company (other than a retail
        customer), (2) a supplier of a type of product sold by the Company, (3) an
        actively solicited prospective customer of the Company (other than a retail
        customer) or (4) an actively solicited prospective supplier of a type of
        product
        sold by the Company, in each case, at the time of the Executive’s termination of
        employment or during the six (6) month period prior thereto. As long as the
        Executive does not engage in any other activity prohibited by this
        Section 8(a), the Executive’s ownership of less than 2% of the issued and
        outstanding stock of any corporation whose stock is traded on an established
        national securities market shall not constitute an activity prohibited under
        this Section 8(a).

       

      (b)  Specific
        Performance.
        If the
        Executive breaches or threatens to commit a breach of the provisions of Sections
        7 or 8 hereof, the Company shall have the right to have such Restrictive
        Covenants specifically enforced by any court of competent jurisdiction, it
        being
        agreed that any breach or threatened breach (if carried out) of the Restrictive
        Covenants would cause irreparable injury to the Company and that money damages
        would not provide an adequate remedy for such injury. Accordingly, the Company
        shall be entitled to injunctive relief to enforce the terms of the Restrictive
        Covenants and to restrain the Executive from any violation thereof, without
        the
        need to post any type of bond or other form of security in connection with
        such
        relief and enforcement. The rights and remedies set forth in this Section
        8(b)
        shall be independent of all other others rights and remedies available to
        the
        Company for a breach of the Restrictive Covenants, and shall be severally
        enforceable from, in addition to, and not in lieu of, any other rights and
        remedies available at law or in equity. Notwithstanding the foregoing, if
        the
        breach or threatened breach by the Executive of the Restrictive Covenants
        is of
        the type that can be cured by the Executive, the Company shall provide the
        Executive with ten (10) days’ prior written notice before seeking such specific
        performance, and the Company shall not seek such relief if the Executive,
        within
        such ten (10) day period, fully cures any such breach or delivers a sworn
        written affidavit to the Company stating that he will not commit such threatened
        breach, as applicable.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      (c)  Tolling.
        If
        Executive violates any of the restrictions contained in this Section 8, the
        restrictive period will be suspended and will not run in favor of Executive
        from
        the time of the commencement of any violation until the time when Executive
        cures the violation to the satisfaction of the Company.

       

      (d)  Reformation.
        The
        courts enforcing this Agreement shall be entitled to modify the duration
        and
        scope of any restriction contained herein to the extent such restriction
        would
        otherwise be unenforceable, and such restriction as modified shall be enforced.
        Executive acknowledges that the restrictions imposed by this Agreement are
        legitimate, reasonable and necessary to protect the Company’s investment in its
        businesses and the goodwill thereof. Executive acknowledges that the scope
        and
        duration of the restrictions contained herein are reasonable in light of
        the
        time that Executive has been engaged in the business of the Company, Executive’s
        reputation in the markets for the Company’s business and Executive’s
        relationship with the suppliers, customers and clients of the
        Company.

       

      9.  Miscellaneous.

       

      (a)  Integration;
        Amendment.
        This
        Agreement constitutes the entire agreement among the parties hereto with
        respect
        to the matters set forth herein and supersedes and renders of no force and
        effect all prior understandings and agreements among the parties with respect
        to
        the matters set forth herein. No amendments or additions to this Agreement
        shall
        be binding unless in writing and signed by the Executive and the
        Company.

       

      (b)  Assignment.
        The
        Company may assign this Agreement to any successor by operation of law or
        purchaser of all or substantially all of the assets of the Company. The Company
        shall, following any permitted assignment, remain liable and responsible
        for all
        obligations of the Company hereunder. The Executive may not assign this
        Agreement or any right or interest therein, whether by operation of law or
        otherwise, without the prior written consent of the Company.

       

      (c)  Severability.
        If any
        part of this Agreement is contrary to, prohibited by, or deemed invalid under
        applicable law or regulations, such provision shall be inapplicable and deemed
        omitted to the extent so contrary, prohibited, or invalid, but the remainder
        of
        this Agreement shall not be invalid and shall be given full force and effect
        so
        far as possible.

       

      (d)  Waivers.
        The
        failure or delay of any party at any time to require performance by any other
        party of any provision of this Agreement, even if known, shall not affect
        the
        right of such party to require performance of that provision or to exercise
        any
        right, power, or remedy hereunder, and any waiver by any party of any breach
        of
        any provision of this Agreement shall not be construed as a waiver of any
        continuing or succeeding breach of such provision, a waiver of the provision
        itself, or a waiver of any right, power, or remedy under this Agreement.
        No
        notice to or demand on any party in any case shall, of itself, entitle such
        party to any other or further notice or demand in similar or other
        circumstances.

       

      (e)  Power
        and Authority.
        The
        Company represents and warrants to the Executive that it has the requisite
        corporate power to enter into this Agreement and perform the terms hereof,
        and
        that the execution, delivery and performance of this Agreement by it has
        been
        duly authorized by all appropriate corporate action.

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      (f)  Burden
        and Benefit.
        This
        Agreement shall be binding upon and inure to the benefit of the parties hereto
        and their respective heirs, executors, personal and legal representatives,
        successors and, subject to Section 9(b) above, assigns. Any provision of
        this
        Agreement which by its terms requires performance beyond the term of this
        Agreement shall survive the term of this Agreement in accordance with the
        terms
        of such provision.

       

      (g)  Time
        Is of the Essence.
        Time is
        of the essence for all purposes of this Agreement.

       

      (h)  Jurisdiction;
        Venue; Legal Fees.
        Jurisdiction and venue for any action arising out of this Agreement shall
        be in
        the appropriate State or Federal courts in Tarrant County, Texas.

       

      (i)  Governing
        Law; Headings.
        This
        Agreement and its construction, performance, and enforceability shall be
        governed by, and construed in accordance with, the laws of the State of Texas.
        Headings and titles herein are included solely for convenience and shall
        not
        affect the interpretation of this Agreement.

       

      (j)  Notices.
        All
        notices called for under this Agreement shall be in writing and shall be
        deemed
        given upon receipt if delivered personally or by facsimile transmission and
        followed promptly by mail, or mailed by registered or certified mail (return
        receipt requested), postage prepaid, to the parties at the following addresses
        (or at such other address for a party as shall be specified by like notice;
        provided that notices of a change of address shall be effective only upon
        receipt thereof):

       

      If
        to the
        Executive:

       

      

       

      David
        B.
        Stewart

       

      2855
        Bloor Street W, Unit 440

       

      Toronto,
        Ontario M8X3A1

       

      Telephone:
        416-233-2217

       

      With
        a
        copy to:

       

      Paul,
        Weiss, Rifkind, Wharton & Garrison, LLP

      1285
        Avenue of the Americas

      New
        York,
        New York 10019

      Attention:
        Michael J. Segal, Esq.

      Facsimile:
        212-757-3990

       

      If
        to the
        Company:

       

      

       

      The
        Bombay Company, Inc.

       

      550
        Bailey Avenue

       

      Fort
        Worth, Texas 76107-2111

       

      Attn:
        General Counsel

       

      Facsimile:
        817-339-3739

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      Any
        notice delivered to the party hereto to whom it is addressed shall be deemed
        to
        have been given and received on the day it was received; provided,
        however,
        that if
        such day is not a business day then the notice shall be deemed to have been
        given and received on the business day next following such day. Any notice
        sent
        by facsimile transmission shall be deemed to have been given and received
        on the
        next business day following the day of transmission.

       

      (k)  Counterparts.
        This
        Agreement may be executed in one or more counterparts, each of which
        counterparts shall be deemed to be an original, and all such counterparts
        shall
        constitute one and the same agreement.

       

      (l)  No
        Strict Construction.
        The
        parties hereto confirm that they have each participated in the negotiation
        and
        preparation of this Agreement and that this Agreement represents the joint
        agreement and understanding of the parties. The language used in this Agreement
        has been mutually chosen by the parties hereto, and no rule of strict
        construction construing ambiguities against any party hereto shall be
        applied.

       

      (m)  Delay
        of Severance Benefits.
        Notwithstanding anything to the contrary contained herein, in the event any
        payments made upon termination of the Executive’s employment pursuant to Section
        4 or Section 5 hereof are deemed to be subject to (and not otherwise exempt
        from) the requirements of Code Section 409A, and the Executive is deemed
        a
“specified employee” (as defined in Code Section 409A), then, if and to the
        extent required to avoid tax penalties pursuant to Code Section 409A, the
        Executive shall not be entitled to any such payments that are subject to
        Code
        Section 409A until the first day of the seventh month following the date
        of his
        termination; provided,
        however,
        that
        the aggregate amount of any payments (plus interest at the prime interest
        rate
        in effect upon termination of employment) that would have otherwise been
        paid
        during such six month delay period shall be paid on the first day of the
        seventh
        month following the Executive’s termination of employment.

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      ***************

       

      IN
        WITNESS WHEREOF, the parties have duly executed this Agreement, or caused
        this
        Agreement to be duly executed on their behalf, as of the date first above
        written.

       

      THE
        BOMBAY COMPANY, INC.

      

      

      By:      
        /s/MICHAEL J. VEITENHEIMER

      Name: 
        Michael J. Veitenheimer

      Title:   
        Senior Vice President, Secretary

                  
        and General Counsel

      Date:   
June
        5, 2006

      

      

      /s/
        DAVID
        B. STEWART
David
        B.
        Stewart

      

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      EXHIBIT
        A

       

      OPTION
        AWARD AGREEMENT

       

      

       

    

    
       

      
        16Non-Qualified Option Agreement

    THE
      BOMBAY COMPANY, INC.

    NON-QUALIFIED
      OPTION AGREEMENT

    

    This
      Non-Qualified Option Agreement (the “Agreement”)
      is
      made effective as of the 5th
      day of
      June, 2006, between THE BOMBAY COMPANY, INC., a Delaware corporation (the
“Company”),
      and
      DAVID B. STEWART, an employee of the Company or one of its subsidiaries
      (“Employee”).

    

    RECITALS

    

    
      	A.  	
              The
                Company and Employee are parties to that certain Employment Agreement,
                dated June 5, 2006 (the “Employment
                Agreement”),
                whereby Employee may from time to time receive option grants to purchase
                shares of the Company’s $1.00 par value common stock (the “Shares”).
                Capitalized terms used in this Agreement but not defined herein shall
                have
                the meanings given to them under the Employment
                Agreement.

            

    

    

    
      	B.  	
              The
                Company desires to afford Employee the opportunity to purchase Shares
                in
                accordance with the terms of this
                Agreement.

            

    

    

    
      	C.  	
              The
                parties intend for this Agreement to comply with the provisions governing
                nonqualified stock options under Internal Revenue Service Notice
                2005-1
                and the proposed Treasury Regulations issued on September 29, 2005
                under
                Section 409A of the Internal Revenue Code of 1986, as amended (the
                “Code”)
                in order to exempt this Agreement and the option granted hereunder
                from
                application of Section 409A of the
                Code.

            

    

    

    AGREEMENT

    

    NOW
      THEREFORE, in consideration of the mutual covenants hereinafter set forth and
      for other good and valuable consideration, the receipt and sufficiency of which
      is hereby acknowledged, the parties hereto agree as follows:

    

    1. Grant
      of Option.
      The
      Company hereby grants to Employee the right and option (the “Option”)
      to
      purchase an aggregate of 550,000 Shares (the “Option
      Shares”),
      such
      Shares being subject to adjustment as provided in paragraph 8 hereof, and on
      the
      terms and conditions herein set forth. All of the Shares granted pursuant to
      this Option, are granted as a non-qualified stock option (a “Non-Qualified
      Option”).
      

    

    2. Purchase
      Price.
      The
      purchase price of the Option Shares shall be $2.21
      per
      Share, such purchase price being 100% of the fair market value of such Shares
      on
      June 5, 2006 (the “Date
      of Grant”),
      determined by the Board of Directors of the Company (the “Board”)
      or an
      authorized Committee of the Board (the “Committee”)
      in
      accordance with Section 409A of the Code and the regulations and guidance issued
      thereunder.

    3. Vesting;
      Exercise of Option.

    

    (a) Vesting
      and Time of Exercise.
      Unless
      expired as provided in paragraph 5 below, and subject to the special provisions
      of paragraphs 3(b) and 3(c) below, the Option Shares shall be vested and this
      Option may be exercised as follows: (i) 100,000 Option Shares shall vest on,
      and
      may be exercised, in whole or in part, at any time after, the first anniversary
      of the Date of Grant; (ii) an additional 175,000 Option Shares shall vest on,
      and may be exercised, in whole or in part, at any time after, the second
      anniversary of the Date of Grant; and (iii) the remaining 275,000 Option Shares
      shall vest on, and may be exercised, in whole or in part, at any time after,
      the
      third anniversary of the Date of Grant. 

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    (b) Acceleration
      upon Termination without Cause or Resignation Due to Company
      Breach.
      Notwithstanding
      any provision of this Agreement to the contrary and unless expired as provided
      in paragraph 5 below, if Employee is terminated by the Company without Cause
      or
      if Employee resigns upon Company Breach at any time after the first anniversary
      of the Date of Grant, then a “pro rata portion” of the Option Shares that would
      have vested and become exercisable had Employee remained employed through the
      vesting date immediately following such termination shall immediately become
      vested and exercisable. For purposes of this paragraph 3(b), a “pro rata
      portion” shall be the number of Option Shares (rounded down to the next whole
      Option Share) equal to (i) the number of full calendar months that Employee
      has
      served as the Company’s Chief Executive Officer pursuant to the Employment
      Agreement since the vesting date immediately prior to such termination, divided
      by (ii) 12. By way of example, if Employee resigns upon Company Breach six
      (6)
      months after the first anniversary of the Date of Grant, 50% of the Option
      Shares that would have vested on the second anniversary of the Date of Grant
      will become immediately vested and exercisable on the date of such termination
      and the remaining 50% of the Option Shares that would have vested on the second
      anniversary of the Date of Grant and all of the Option Shares that would have
      vested on the third anniversary of the Date of Grant will expire on the date
      of
      such termination.

    

    (c) Acceleration
      upon Change of Control.
      Notwithstanding any provision of this Agreement to the contrary and unless
      expired as provided in paragraph 5 below, this Option shall become immediately
      fully vested and exercisable as to all of the Option Shares covered hereby
      upon
      the occurrence of a Change of Control Event (as defined in paragraph 5(c)
      below). 

     

    

    4. Manner
      of Exercise; Payment of Purchase Price or Cashless Exercise.

    

    (a) Subject
      to the terms and conditions of this Agreement, this Option shall be exercised
      by
      written notice to the Company at its principal office. Such notice shall state
      the election to exercise this Option and shall specify the total number of
      Option Shares sought to be exercised pursuant to the notice. Such notice of
      exercise shall be signed by Employee and shall be irrevocable when given.

    

    (b) At
      Employee’s election, this Option may be exercised either by (i) payment of the
      purchase price for the Option Shares, as described in paragraph 4(b)(i) below,
      or (ii) to the extent permitted by applicable law and with the consent of the
      Company, means of a cashless exercise, as described in paragraph 4(b)(ii)
      below.

    

    (i) Payment
      of Purchase Price.
      If
      Employee elects to exercise this Option by payment of the purchase price for
      the
      Option Shares, the notice of exercise shall be accompanied by the full payment
      of the purchase price for the Option Shares in cash by certified check or bank
      cashier's check or through satisfactory arrangements for payment by a broker
      representing Employee in the sale of some or all of the Option Shares. Subject
      to approval of the Committee, payment of the purchase price may be accomplished
      by the surrender of stock certificates representing Shares that (A) have an
      aggregate fair market value on the date of exercise equal to the purchase price
      of the Option Shares and (B) have not been acquired from the Company within
      six
      (6) months prior to the date of the notice of exercise, or by a combination
      of
      cash and such Shares.

    

    (ii) Cashless
      Exercise.
      If
      Employee elects to exercise this Option by means of a cashless exercise and
      such
      cashless exercise is permitted by applicable law and approved in writing by
      the
      Committee, the number of Option Shares to be received by Employee shall equal
      the excess, if any, of (A) the number of Option Shares that would be received
      by
      Employee upon such exercise had Employee paid the purchase price for the Option
      Shares in cash over (B) a number of Option Shares, the aggregate fair market
      value of which is equal to the aggregate purchase price that would have been
      paid as determined pursuant to the immediately preceding clause
      (A).

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (c) Upon
      receipt of the purchase price, and subject to the terms of paragraph 11, a
      certificate representing the Option Shares exercised shall be registered in
      the
      name of the person or persons so exercising this Option. In the event this
      Option shall be exercised pursuant to paragraph 4(e), by any person or persons
      other than Employee, such notice shall be accompanied by appropriate proof
      satisfactory to the Company of the right of such person or persons to exercise
      this Option. All Shares issued as a result of an exercise of this Option as
      provided herein shall be fully paid and non-assessable. If Employee fails to
      pay
      for any of the Option Shares specified in his notice of exercise or fails to
      accept delivery thereof, then this Option, and the right to purchase such Option
      Shares may be forfeited, at the election, and in the sole discretion, of the
      Company.

    

    (d) The
      payment of withholding tax liability by Employee shall be a condition precedent
      to the Company’s obligation to issue any certificates for Shares resulting from
      an exercise of this Option. The Company shall have the right to deduct from
      all
      amounts hereunder paid in cash or other form, any Federal, state, local, or
      other taxes required by law to be withheld in connection with this Option.
      The
      Company may, in its sole discretion, withhold any such taxes from any other
      cash
      remuneration otherwise paid by the Company to Employee. To the extent permitted
      by applicable law, the withholding requirement may be satisfied, in whole or
      in
      part, at the election of Employee, by withholding from the Shares otherwise
      issuable upon the exercise of the Option (or portion thereof) that number of
      Shares having an aggregate fair market value on the date of exercise equal
      to
      the amount determined by the Company as the amount required to be withheld
      for
      tax purposes (or such greater amount of withholding as elected by Employee
      in
      writing). Employee is hereby advised to consult immediately with his own tax
      advisor regarding the tax consequences of this Agreement, including, without
      limitation, any possible tax consequences of this Agreement in connection with
      Section 409A of the Code.

    

    (e) Subject
      to the terms and conditions set forth in paragraph 3 above and paragraph 5
      below, during the lifetime of Employee, this Option may be exercised only by
      Employee, or by Employee’s guardian or personal or legal representative. If
      Employee terminates service with the Company due to his death prior to the
      expiration of this Option in accordance with paragraph 5, and Employee has
      not
      exercised this Option as to the maximum number of vested Option Shares as of
      his
      date of death, then the following persons may exercise the vested and
      exercisable portion of the Option on behalf of Employee at any time prior to
      the
      earliest of the dates specified in paragraph 5 hereof: the personal
      representative of his estate, or the person who acquired the right to exercise
      the Option by bequest or inheritance or by reason of the death of Employee;
      provided that the Option shall remain subject to the other terms of this
      Agreement and applicable laws, rules, and regulations.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    5. Expiration
      of Option.
      Other
      than as stated below in this paragraph 5, this Option, if vested and not
      exercised, shall expire and become null and void upon the expiration of ninety
      (90) days after Employee ceases to be employed by the Company or any of its
      subsidiaries. Subject to the provisions of paragraph 3 above, all unvested
      portions of this Option shall expire on the date of the termination of
      Employee’s employment for any reason.

    

    (a) Without
      Cause or Due to Company Breach.
      If
      Employee’s employment is terminated by the Company without Cause or by Employee
      upon Company Breach, this Option shall continue to be exercisable until the
      earlier to occur of (i) the date that is six (6) months following the date
      of
      such termination and (ii) the end of the applicable period provided in paragraph
      5(d) below. 

    

    (b) Death
      or Disability.
      In the
      event of the termination of Employee’s employment by the Company on account of
      death or “disability” (as defined in the Employment Agreement), this Option
      shall continue to be exercisable until the earlier to occur of (i) the date
      that
      is twelve (12) months following the termination of Employee’s employment on
      account of his death or disability, and (ii) the end of the applicable period
      provided in paragraph 5(d) below.

    

    (c) Change
      of Control.
      If a
      Change of Control occurs and within one (1) year of the Change of Control (as
      defined in the Employment Agreement), Employee’s employment is terminated other
      than for Cause or by Employee’s resignation without Company Breach
      (collectively, a “Change
      of Control Event”),
      then
      this Option shall continue to be exercisable until the earlier to occur of
      (i)
      the one (1) year anniversary of the Change of Control Event, and (ii) the end
      of
      the applicable period provided in paragraph 5(d) below.

    

    (d) Termination
      of Option.
      Notwithstanding the above, this Option shall, without exception, become null
      and
      void once a period of seven (7) years shall have lapsed since the Date of Grant.
      Only those portions of this Option vested on or before the date of termination
      of Employee’s employment may be exercised.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    6. Option
      Non-transferable.
      Unless
      permitted by law and regulation and approved in writing by the Committee, this
      Option and any right related thereto shall not be transferable by Employee
      otherwise than by will or by the laws of descent and distribution.

    

    7. No
      Fractional Shares.
      The
      Option may be exercised only with respect to full shares, and no fractional
      share of stock shall be issued.

    

    8. Adjustments
      of Shares Subject to Option.
      If any
      Shares shall at any time be changed or exchanged by reason of reorganization,
      merger, consolidation, recapitalization, reclassification, stock split,
      combination of shares or a dividend payable in stock, then the aggregate number
      of Option Shares subject to this Agreement and the purchase price of such Option
      Shares shall be automatically adjusted in a manner which complies with Section
      409A of the Code such that Employee’s proportionate interest shall be maintained
      as before the occurrence of such event. The determination of any such adjustment
      by the Committee shall be final, binding and conclusive.

    

    9. No
      Contract.
      This
      Agreement does not constitute a contract for employment and shall not affect
      the
      right of the Company to terminate Employee’s employment for any reason
      whatsoever.

    

    10. Rights
      as Shareholder.
      This
      Agreement shall not entitle Employee or any permitted transferee to any rights
      of a shareholder of the Company or to any notice of proceedings of the Company
      with respect to any Option Shares issuable upon exercise of this Option unless
      and until this Option has been exercised for such Shares.

    

    11. Restriction
      on Issuance of Shares.
      Notwithstanding any of the provisions hereof, Employee hereby agrees that he
      will not exercise the Option granted hereby, and that the Company will not
      be
      obligated to issue any shares to Employee hereunder, if the exercise thereof
      or
      the issuance of such shares shall constitute a violation by Employee or the
      Company of any provision of any law or regulation of any governmental authority.
      The Company shall not be required to issue or deliver any certificates for
      Shares purchased upon the exercise of this Option prior to the obtaining of
      any
      approval from any governmental agency which the Company shall, in its sole
      discretion, determine to be legally required. The Company shall file an
      appropriate registration statement, and shall use commercially reasonable
      efforts to register, with the Securities and Exchange Commission, all Option
      Shares prior to the date any of the Option Shares vest in accordance with
      paragraph 3, in connection with Employee’s exercise and resale of such Option
      Shares. 

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    12. Section
      409A.
      The
      Company shall take no action in respect of this Option which would cause it
      to
      result in an accelerated or additional tax under Section 409A of the
      Code.

    

    13. Lapse
      of Option.
      The
      Agreement shall be null and void in the event Employee shall fail to sign and
      return a counterpart hereof to the Company within thirty (30) days following
      its
      delivery to Employee.

    

    14. Binding
      Effect.
      This
      Agreement shall be binding upon the heirs, executors, administrators, and
      successors of the parties hereto.

    

    15. Governing
      Instrument and Law.
      This
      Agreement and any Shares issued hereunder shall be subject to the laws of the
      State of Texas. Moreover, in the event of any conflict between the terms of
      this
      Agreement and the terms of the Employment Agreement, except with respect to
      the
      provisions of paragraph 5 above, the terms of the Employment Agreement shall
      control. With respect to the provisions of paragraph 5 above, in the event
      of
      any conflict between paragraph 5 and the terms of the Employment Agreement,
      paragraph 5 shall control.

    

    16. Modification.
      No
      change or modification of this Agreement shall be valid or binding upon the
      parties unless the change or modification is in writing and signed by the
      parties. 

    

    17. Notice.
      All
      notices called for under this Agreement shall be in writing and shall be deemed
      given upon receipt if delivered personally or by facsimile transmission and
      followed promptly by mail, or mailed by registered or certified mail (return
      receipt requested), postage prepaid, to the parties at the following addresses
      (or at such other address for a party as shall be specified by like notice;
      provided that notices of a change of address shall be effective only upon
      receipt thereof):

    

    If
      to
      Employee:

    

    David
      B.
      Stewart

    2855
      Bloor Street W, Unit 440

    Toronto,
      Ontario M8X3A1

    Telephone:
      416-233-2217

    With
      a
      copy to:

    

    Paul,
      Weiss, Rifkind, Wharton & Garrison, LLP

    1285
      Avenue of the Americas

    New
      York,
      New York 10019

    Attention:
      Michael J. Segal, Esq.

    Facsimile:
      212-757-3990

    

    If
      to the
      Company:

    

    The
      Bombay Company, Inc.

    550
      Bailey Avenue

    Fort
      Worth, Texas 76107-2111

    Attn:
      General Counsel

    Facsimile:
      817-339-3739

    

    Any
      notice delivered to the party hereto to whom it is addressed shall be deemed
      to
      have been given and received on the day it was received; provided, however,
      that
      if such day is not a business day then the notice shall be deemed to have been
      given and received on the business day next following such day. Any notice
      sent
      by facsimile transmission shall be deemed to have been given and received on
      the
      next business day following the day of transmission.

    

    Remainder
      of page intentionally left blank;

    Signature
      page follows

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

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

    

    

    

    THE
      BOMBAY COMPANY, INC.

    

    

    By:
      /s/MICHAEL
      J. VEITENHEIMER

                                                                          Michael
      J. Veitenheimer, 

                                                                                         
      Senior Vice President, Secretary and General Counsel 

    Accepted
      and Agreed:

    

    /s/DAVID
      B. STEWART                                            
      Date: June 5, 2006

    David
      B.
      Stewart

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