Document:

Exhibit 10.1

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED
EMPLOYMENT AGREEMENT (this “Agreement”), dated December 22, 2008, is by
and between ZALE CORPORATION, a Delaware corporation (the “Company”), and NEAL
GOLDBERG (“Executive”).

 

WHEREAS Executive and the
Company are parties to that certain executed Employment Agreement (the “Prior
Agreement”) dated as of December 20, 2007 (the “Effective Date”), whereby
the Company agreed to employ Executive and Executive agreed to accept such employment
upon the terms and conditions set forth therein; and

 

WHEREAS in order to address the
requirements of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and to incorporate other changes into the Prior
Agreement, Executive and the Company wish to amend and restate the Prior
Agreement in its entirety as set forth in this Agreement, effective as of the
date first above written.

 

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 continue in the
employment of the Company, and the Company agrees to continue such employment,
on the terms and conditions set forth in this Agreement.  The term of Executive’s employment under the
Prior 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 of the Effective
Date either party provides written notice of termination to the other party.

 

2.  Position; Duties.  During the Term, Executive will serve as
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 $1,025,000  (“Base
Salary”), which will be payable in arrears in accordance with the Company’s
normal payroll procedures in the amount of $39,423.08  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)  If Executive’s employment with the Company is terminated for
any reason prior to the first anniversary of the Effective Date, Executive will
repay to the Company the Relocation and Signing Bonus (as defined in the Prior
Agreement) in accordance with the Company’s standard sign-on bonus agreement.

 

(ii)  The Company granted 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
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 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 

 

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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”) was no less than the greater of (A) 50% of the Target Bonus or (B) the
actual annual incentive 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 (1) was previously paid 50% of
the Target Bonus for Period 1 and (2) shall be paid an amount equal to the
excess of (I) the Guaranteed Bonuses over (II) the amount paid
pursuant to Clause (1) of this sentence, which 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 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

 

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presentation
of itemized expense statements and such other supporting information as may be
required by the Company.

 

(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;

 

(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 

 

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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, other than a reduction effected in connection with a general
reduction of compensation for all senior executives of the Company and its subsidiaries;

 

(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 (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 

 

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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 noncompetition,
no-hire/non-solicitation, non-disclosure and non-disparagement provisions 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 

 

6

 

after the date of Executive’s death; provided that all unpaid amounts
of the Base Salary due to Executive pursuant to this Section 5(a) shall
be distributed to Executive in a lump-sum on the payroll date immediately preceding
March 15 of the calendar year following the calendar year in which
Executive’s employment is terminated due to his 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 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; provided that all unpaid portions of the Severance Amount shall be
distributed to Executive in a lump sum on the payroll date immediately
preceding March 15 of the calendar year following the calendar year in
which Executive’s employment was terminated.

 

7

 

(ii)  Benefits.  For the duration of the twenty-four (24)
month period commencing on the first ordinary payroll payment date that follows
the date that is sixty (60) days after the date of termination of Executive’s
employment (the “Severance Period”), 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 (3) 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 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

 

8

 

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; provided
that all unpaid amounts of the Base Salary due to Executive pursuant to this Section 5(e) shall
be distributed to Executive in a lump-sum on the payroll date immediately
preceding March 15 of the calendar year following the calendar year in
which Executive’s employment is terminated due to a Disability Event.  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(e)(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(h)) in a
termination that constitutes a “separation from service” for purposes of Section 409A
of the Code, or due to 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
sixty (60) days after the date of termination of Executive’s employment; provided,
however, that for purposes of the

 

9

 

calculation of clause (B) of
this Section 6(a)(i), the 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  insurance, 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, as amended (“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 immediately
prior to such merger, consolidation or other transaction, 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

 

11

 

(A) by the Company for
a Disability Event or Cause or as a result of 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 a 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 

 

12

 

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 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)(1) 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

 

13

 

Code) in excess of the base
amount (within the meaning of 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 as determined by the Auditor and the Tax Counsel:  (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

 

14

 

reduction of the Total
Payments to the Safe Harbor 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
he 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 purpose, 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

 

16

 

modification will, 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

 

17

 

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, 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 underlying 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 two (2) years
following the 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

 

18

 

and valuable consideration and,
as such, shall survive the termination of this Agreement for whatever
reason.  The parties further agree that
any invalidity or unenforceability of any one or more of such restrictions on
competition shall not render invalid or unenforceable any remaining
restrictions on competition. 
Additionally, should a court of competent jurisdiction determine that
the scope of any provision of this Section 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;

 

19

 

(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

 

(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.

 

20

 

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, 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 the
Company 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

 

21

 

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.  Recoupment.  In the event the Board determines that
Executive has engaged in negligence or fraudulent or intentional misconduct
that has resulted in a significant restatement of the Company’s financial
results and, had the results been properly calculated, Executive would have
received less compensation, the Executive acknowledges that, upon the Board’s
written notice to Executive, Executive shall reimburse to the Company any
portion of any performance-based or incentive compensation paid or awarded to
Executive, whether cash or equity-based, in all years that is greater than
would have been paid or awarded calculated based upon the restated financial
results.  Without limiting the foregoing,
the Board shall seek recoupment in all instances where Section 304 of the
Sarbanes-Oxley Act of 2002 requires the Company to seek recoupment.  Executive acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of Section 9,
10, 11, 12 or 13 of this Agreement would be inadequate and, in recognition of
this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, Executive shall forfeit all
payments otherwise due under Sections 5, 6 and 7 of this Agreement and shall
return to the Company any Severance Pay made to Executive prior to such forfeiture.  This Section 14 shall not limit the
Company’s entitlement to take other appropriate actions with respect to
Executive up to and including the termination of Executive’s employment.

 

15.  Severability.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never constituted a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance 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.

 

16.  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

 

22

 

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.

 

17.  Survival.  Executive acknowledges and agrees that this
Agreement, including, but not limited to Sections 9, 10, 11, 12, 13, 14, 15, 16,
18, and 18(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.

 

18.  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 18:

 

	
  If to the Company:

  	
   

  	
  Zale Corporation

  
	
   

  	
   

  	
  901 W. Walnut Hill Lane

  
	
   

  	
   

  	
  Irving, Texas 75038

  
	
   

  	
   

  	
  Attention: General Counsel

  

 

23

 

	
  If to Executive:

  	
   

  	
  Neal Goldberg

  
	
   

  	
   

  	
  2408 Victory Park Lane,#835

  
	
   

  	
   

  	
  Dallas, TX 75219

  
	
   

  	
   

  	
   

  
	
  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, 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

 

24

 

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]

 

25

 

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/ Mary Ann Doran

  
	
   

  	
   

  	
  Mary Ann Doran

  
	
   

  	
   

  	
  Title: 

  	
  Senior Vice President,

  
	
   

  	
   

  	
   

  	
  Human Resources

  

 

26Exhibit 10.2

 

FORM OF

[AMENDED AND RESTATED]

EMPLOYMENT
SECURITY AGREEMENT(1)

 

This [Amended
and Restated] Employment Security Agreement (the “Agreement”), dated as
of December 22, 2008, is between Zale Corporation (“Company”) and
the undersigned [Executive Vice] President of Company (“Executive”).

 

[WHEREAS, in
order to achieve its long term objectives, Company recognizes that it is
essential to attract and retain qualified executives; and

 

WHEREAS, in
consideration of Executive’s valuable service for, and critical contribution to
the success of, Company, Company desires to provide Executive with certain
benefits in the event Executive’s employment is terminated, either in
connection with or unrelated to a Change of Control of Company, on the terms
and subject to the conditions set forth in this Agreement.  Capitalized terms that are used in this
Agreement but not defined in connection with their use are defined in Article V.]

 

NOW, THEREFORE,
in consideration of the promises and of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, it is agreed as follows:

 

ARTICLE I

TERMINATION BENEFITS

 

1.1                               General
Termination Benefits.  If Executive
incurs a Qualifying Termination other than during a Protection Period, he or
she will receive the following termination benefits:

 

(a)                                  Severance Pay.  Subject to Sections 1.7 and 2.1(a), Executive
will receive Severance Pay, which shall be paid in equal installments, in
accordance with Company’s regular payroll practices and procedures, over an
[eighteen (18)] [twenty-four (24)] month period that commences on the first
ordinary payroll payment date that follows the date that is sixty (60) days
after the date on which the Qualifying Termination is incurred; provided that
all unpaid portions of such Severance Pay shall be distributed to Executive in
a lump-sum on the payroll date immediately preceding March 15 of the
calendar year following the calendar year in which Executive incurs such Qualifying
Termination.  In the event that, after
such Qualifying Termination is incurred and Severance Pay under this Section 1.1(a) has
commenced, it is determined that such Qualifying Termination was incurred
during a Protection Period (including as a result of the occurrence of a Change
of Control within six months after such Qualifying Termination), then Executive
shall cease to receive Severance Pay under this Section 1.1(a) and
shall be entitled to additional Severance Pay in accordance with Section 1.2(a).

 

(b)                                 Accrued Obligations.  Executive will be entitled to (i) payment
of any earned and unpaid Base Compensation as of Termination of Employment; (ii) payment
of any earned but unused vacation as of the Termination of Employment, to the
extent such vacation pay is provided under the vacation plan or policy
sponsored by Company 

 

(1) Bracketed language indicates
variations among agreements.

 

 

that is applicable to Executive; and (iii) any
other earned and unpaid obligations as of the Termination of Employment,
including but not limited to any bonus to which Executive may have become
entitled but which has not yet been paid as of Termination of Employment under
the bonus plan or policy sponsored by Company that is applicable to Executive
(the “Accrued Obligations”). 
Accrued Obligations described in clauses (i) and (ii) above
will be paid as part of Executive’s final ordinary payroll payment from Company
for active employment or contemporaneously with such payment, but in no event
later than thirty (30) days after such Termination of Employment, and Accrued
Obligations described in clause (iii) above will 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).

 

(c)                                  Continued Welfare Benefits.  Executive and/or Executive’s dependents will
be entitled to elect to continue their respective health or welfare coverage
pursuant to COBRA.  Provided that
Executive and/or Executive’s dependents elect and maintain such COBRA coverage
until the expiration of their eligibility under COBRA, following such
expiration, Executive and/or Executive’s dependents also will be entitled to
elect to continue such coverage for the remainder, if any, of the Severance Period.  Such health and other welfare benefits will
be provided monthly and will provide the same coverage as available to others
who elect coverage pursuant to COBRA, even though, following the expiration of
Executive’s eligibility for COBRA, it would not be pursuant to COBRA, provided
that the continued participation of Executive and such dependents is possible
under the general terms and provisions of such health or welfare plans.  If Executive’s participation in any such plan
is barred or would result in adverse tax consequences to Executive or Company,
Company will arrange to provide Executive on a monthly basis with benefits
substantially similar to those that Executive otherwise would have been
entitled to receive under such plan or, alternatively at the option of Company,
reimburse Executive on a monthly basis for the reasonable actual costs of
purchasing in the marketplace substantially similar benefits; provided,
however, that, in either case, Executive will pay to Company, or provide a
credit against Company’s reimbursement obligation for, the amount equal to the
premiums that Executive would have been required to pay to maintain such
benefits hereunder.

 

During the
Severance Period, Executive’s premiums for coverage provided pursuant to COBRA
will be equal to the premiums Executive paid prior to Termination of
Employment.  All premium payments paid by
Executive and/or Executive’s dependents for coverage will be paid directly to
the appropriate insurer or service provider for such benefit (which may be
Company).  For the avoidance of doubt,
Executive’s continuation of health and welfare benefits during the Severance
Period; shall count against Executive’s continuation of coverage period
required under COBRA.

 

Any health or
welfare benefits received by or available to Executive from or in connection
with any other employment of Executive, consultancy arrangement undertaken by
Executive or similar source that are reasonably comparable to, but not
necessarily as financially or otherwise beneficial to Executive as, the
benefits provided to Executive by Company at the time of the Termination of
Employment will be deemed the equivalent thereof and will terminate Company’s
obligation under this Section 1.1(c) to provide health and welfare
coverage during the Severance Period: provided, however, that
nothing in this paragraph will limit or terminate Executive’s or 

 

2

 

Executive’s
dependents’ right to continue any Company group health plan coverage at
Executive’s or such dependent’s cost for the remainder of the COBRA
period.  Executive agrees to advise
Company of the availability of any such subsequent benefit coverages within 30
days following such availability.

 

The provisions
of this Section 1.1(c) will not prohibit Company from changing the
terms of any benefit programs provided that any such changes apply to all
executives of Company and its Affiliates (e.g.,
Company may switch insurance carriers or preferred provider organizations or
change coverages).

 

(d)                                 Outplacement Services.  Executive will be entitled to receive
outplacement services from an entity selected by Company for a period of three (3) months,
provided that such services do not commence later than six (6) months
following Termination of Employment. 
Company will pay the outplacement service provider directly for the cost
of such outplacement services.

 

(e)                                  Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will expire, unless otherwise
provided in such awards or such Equity Plan. 
Following his or her Termination of Employment, Company will not grant
Executive any equity-based compensation awards.

 

(f)                                    401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.

 

1.2                               Termination
Benefits in Connection with a Change of Control.  If Executive incurs a Qualifying Termination
during a Protection Period, he or she will receive the following termination
benefits:

 

(a)                                  Severance Pay.  Subject to Sections 1.7 and 2.1(a), Executive
will receive Severance Pay in a single lump-sum within sixty (60) days after
the date on which the Qualifying Termination is incurred.  In the case of a Qualifying Termination that
is incurred during the portion of the Protection Period that precedes the
Change of Control, (i) the amount of Severance Pay payable to Executive
pursuant to this Section 1.2(a) shall be reduced by the amount of any
Severance Pay paid to Executive pursuant to Section 1.1(a) prior to
the date the Change of Control occurs and (ii) such additional Severance
Pay shall be paid to Executive in a single lump-sum within sixty (60) days
after the date on which such Change of Control occurred.

 

(b)                                 Accrued Obligations.  Executive will be entitled to payment of any
Accrued Obligations in accordance with the provisions of Section 1.1(b).

 

(c)                                  Continued Welfare Benefits.  Executive and Executive’s dependents will be
entitled to receive health and other welfare benefits in accordance with the provisions
of Section 1.1(c) for the duration of the Severance Period.

 

(d)                                 Outplacement Services.  Executive will be entitled to receive
outplacement services in accordance with the provisions of Section 1.1(d).

 

3

 

(e)                                  Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will vest immediately upon
Termination of Employment, unless otherwise provided in such awards or such
Equity Plan.  Following his or her
Termination of Employment, Company will not grant Executive any equity-based
compensation awards.

 

(f)                                    401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.

 

(g)                                 Conditional Cap on Severance Pay.  If the payments to Executive pursuant to this
Agreement (when considered with all other payments made to Executive as a
result of a Termination of Employment that are subject to Section 280G of
the Code) (the amount of all such payments, collectively, the “Parachute
Payment”) result in Executive becoming liable for the payment of any excise
taxes pursuant to section 4999 of the Code (“280G Excise Tax”).  Executive will receive the greater on an
after-tax basis of (i) the severance benefits payable pursuant to this Section 1.2
or (ii) the severance benefits payable pursuant to this Section 1.2
as reduced to avoid imposition of the 280G Excise Tax (the “Conditional
Capped Amount”).

 

Not more than
fourteen (14) days following the Termination of Employment Company will notify
Executive in writing (A) whether the severance benefits payable pursuant
to this Section 1.2 when added to any other Parachute Payments payable to
Executive exceed an amount equal to 299% (the “299% Amount”) of Executive’s
“base amount” as defined in Section 280G(b)(3) of the Code, (B) the
amount that is equal to the 299% Amount, (C) whether the severance benefit
described in Section 1.2(g)(i) or the Conditional Capped Amount
pursuant to section 1.2(g)(ii) is greater on an after-tax basis and (C) if
the Conditional Capped Amount is the greater amount, the amount that the
severance benefits payable pursuant to this Section 1.2 must be reduced to
equal such amount.

 

The
calculation of the 299% Amount, the determination of whether the termination
benefits described in Section 1.2(g)(i) or the Conditional Capped
Amount described in Section 1.2(g)(ii) is greater on an after-tax
basis and, if the Conditional Capped Amount in Section 1.2(g)(ii) is
the greater amount, the determination of how much Executive’s termination
benefits must be reduced in order to avoid application of the 280G Excise Tax
will be made by Company’s public accounting firm in accordance with section
280G of the Code or any successor provision thereto.  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 the Termination of Employment absent any acceleration of
payment.  If the reduction of the amounts
payable hereunder would not result in a reduction of the Parachute Payments to
the Conditional Capped Amount, no amounts payable under this Agreement shall be
reduced pursuant to this provision.  The
costs of obtaining such determination will be borne by Company.

 

4

 

1.3                               Termination
Benefits in Connection With Disability. 
If Executive has a Termination of Employment as a result of a
Disability, he or she will receive the following termination benefits:

 

(a)                                  Severance Pay.  Subject to Sections 1.7 and 2.1(a), Executive
will receive Severance Pay, which shall be paid in equal installments, in
accordance with Company’s regular payroll practices and procedures, over a
twelve (12) month period that commences on the first ordinary payroll payment
date that follows the date that is sixty (60) days after the date on which the
Executive has a Termination of Employment as a result of a Disability; provided
that all unpaid portions of such Severance Pay shall be distributed to Executive
in a lump-sum on the payroll date immediately preceding March 15 of the
calendar year following the calendar year in which such Termination of
Employment occurs.

 

(b)                                 Accrued Obligations.  Executive will be entitled to payment of any
Accrued Obligations in accordance with the provisions of Section 1.1(b).

 

(c)                                  Continued Welfare Benefits.  Executive and Executive’s dependents will be
entitled to receive health and other welfare benefits in accordance with the
provisions of Section 1.1(c) for the duration of the Severance
Period.

 

(d)                                 Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will expire, unless otherwise
provided in such awards or such Equity Plan. 
Following his or her Termination of Employment, Company will not grant
Executive any equity-based compensation awards.

 

(e)                                  401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.

 

1.4                               Termination
Benefits in Connection With Death. 
If Executive has a Termination of Employment due to death while employed
by Company, his or her estate will receive the following benefits:

 

(a)                                  Severance Pay.  Subject to Section 2.1(a), Executive’s estate
will receive Severance Pay, which shall be paid in equal installments, in
accordance with Company’s regular payroll practices and procedures, over a
twelve (12) month period that commences on the first ordinary payroll payment
date that follows the date that is sixty (60) days after the date on which the
Executive has a Termination of Employment due to death; provided that all
unpaid portions of such Severance Pay shall be distributed to Executive’s
estate in a lump-sum on the payroll date immediately preceding March 15 of
the calendar year following the calendar year in which such Termination of
Employment occurs.

 

(b)                                 Accrued Obligations.  Executive’s estate will be entitled to
payment of any Accrued Obligations in accordance with the provisions of Section 1.1(b).

 

(c)                                  Continued Welfare Benefits.  Executive’s dependants will be entitled to
continue their health and welfare benefits, if any, pursuant to COBRA.

 

5

 

(d)                                 Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will expire, unless otherwise
provided in such awards or such Equity Plan.

 

(e)                                  401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.

 

1.5                               Distributions
on Account of Death of Executive During the Severance Period.  If Executive becomes entitled to Severance
Pay pursuant to Section 1.1, 1.2 or 1.3 and dies during the Severance
Period, the following benefits will be payable:

 

(a)                                  Severance Pay.  Any remaining Severance Pay payable to
Executive as of the date of his or her death will continue to be paid to
Executive’s estate pursuant to Section 1.1, 1.2 or 1.3, as applicable.

 

(b)                                 Accrued Obligations.  Executive’s estate will be entitled to
payment of any Accrued Obligations unpaid as of the date of Executive’s death
in accordance with the provisions of Section 1.1(b).

 

(c)                                  Continued Welfare Benefits.  Executive’s dependents will be entitled to
continue to receive any health or other welfare benefits that they received
immediately prior to the date of Executive’s death for the remainder of the
applicable period, subject to the limitations contained in Section 1.1(c).

 

(d)                                 Outplacement Services.  Any outplacement service benefits available
to Executive pursuant to Section 1.1(d) or 1.2(d) will cease as
of the date of Executive’s death.

 

(e)                                  Equity Compensation Adjustments.  Upon death of Executive, any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
vested prior to Executive’s death will be governed by the terms of such awards
and such Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Executive’s death will expire, unless otherwise provided in such
awards and such Equity Plan.

 

(f)                                    401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.

 

1.6                               Termination
Benefits in Connection With a Termination Other Than a Qualifying Termination.  If Executive has a Termination of Employment
that is not described in Section 1.1, 1.2, 1.3 or 1.4, he or she will
receive the following termination benefits:

 

(a)                                  Severance Pay.  Executive will not receive any Severance Pay.

 

(b)                                 Accrued Obligations.  Executive will be entitled to payment of any
Accrued Obligations in accordance with the provisions of Section 1.1(b).

 

(c)                                  Continued Welfare Benefits.  Executive and Executive’s dependants will be
entitled to continue their health and welfare benefits, if any, pursuant to
COBRA.

 

6

 

(d)                                 Equity Compensation Adjustments.  Any equity-based compensation awards granted
to Executive by Company under an Equity Plan that vested prior to such
Termination of Employment will be governed by the terms of such awards and such
Equity Plan.  Any equity-based
compensation awards granted to Executive by Company under an Equity Plan that
are unvested on Termination of Employment will expire, unless otherwise
provided in such awards or such Equity Plan. 
Following his or her Termination of Employment, Company will not grant
Executive any equity-based compensation awards.

 

(e)                                  401(k) Plan.  The terms of the 401(k) Plan will govern
Executive’s account balance, if any, under such 401(k) Plan.

 

1.7                               Code
Section 409A.

 

(a)                                  It
is the intention of 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)
(collectively, “409A”), and all provisions of this Agreement will be
construed and interpreted in a manner consistent with 409A.

 

(b)                                 To
the extent Executive is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of
the Code and as determined in good faith by Company, 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 Company determines that any provision of this Agreement does not
comply with 409A, Company will be entitled (but will have no obligation)
without Executive’s consent, to amend or modify such provision to comply with
409A; provided, however, that such amendment or modification will, to the greatest
extent commercially practicable, maintain the economic value to Executive of
such provision.

 

(d)                                 For
purposes of 409A, each installment of Severance Pay under Sections 1.1(a), 1.3(a) and
1.4(a) will be deemed to be a separate payment as permitted under Treasury
Regulation Section 1.409A-2(b)(2)(iii).

 

(e)                                  Except
as permitted by Section 409A, the continued benefits provided to Executive
pursuant to this Agreement 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
Agreement 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.

 

(f)                                    Neither
Executive nor any creditor or beneficiary of Executive will have the right to
subject any deferred compensation (within the meaning of Section 409A)
payable under this Agreement or under any other plan, policy, arrangement or
agreement of 

 

7

 

or with 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, any
deferred compensation (within the meaning of Section 409A) 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.

 

ARTICLE II

EXECUTIVE COVENANTS

 

2.1                               Release;
Covenants.  As a condition of
obtaining benefits under this Agreement, Executive will be required to (a) within
forty-five (45) days following Termination of Employment execute and deliver to
Company a general release of claims against Company in such form as may be
required by Company and (b) comply with the covenants set forth in this Article II.  In the event that Executive fails to execute
and deliver such general release within such forty-five-day period or revokes
such general release (but only to the extent revocation is permitted under the
terms of such general release), then Executive will forfeit all entitlement to
any payment, benefit or other amount hereunder. 
Executive’s failure to comply with the covenants of this Article II
will be governed by Section 2.7 and Article III.

 

2.2                               Confidential
Information.  Company promises to
disclose to Executive and Executive acknowledges that in and as a result of his
or her employment with Company, he or she will receive, make use of, acquire,
have access to and/or become familiar with various trade secrets and
proprietary and confidential information of Company and its 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 Company and/or
its Affiliates and regularly used in the operation of its business, and as to
which Company and/or its 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:

 

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

 

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

 

(c)                                  are
of such value and nature as to make it reasonable and necessary to protect and
preserve the confidentiality and secrecy of the Trade Secrets; and

 

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

 

Executive promises not to use in any way or
disclose any of the Trade Secrets, directly or indirectly, either during or
after his or her employment by Company, except as required in the course of his
or her employment, 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 

 

8

 

the business of Company, whether prepared by
Executive or otherwise coming into his or her possession, will remain the
exclusive property of Company and may not be removed from the premises of
Company under any circumstances without the prior written consent of Company (except
in the ordinary course of business during Executive’s employment by Company),
and in any event must be promptly delivered to Company upon termination of
Executive’s employment with Company. 
Executive agrees that upon 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 Company, Executive will timely notify and
promptly provide a copy of the subpoena, process or other request to
Company.  For this purpose, Executive
irrevocably nominates and appoints Company (including any attorney retained by
Company), as his or her 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, will
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 will not render invalid or unenforceable any remaining
restrictions on confidentiality and disclosure. 
Additionally, should an arbitrator or court of competent jurisdiction
determine that the scope of any provision of this Section 2.2 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.

 

2.3                               Non-Competition.  As a material inducement for Company’s promise
to provide the trade secrets and proprietary and confidential information
described in Section 2.2, Executive agrees that during the term of his or
her employment with Company and during the applicable Severance Period
specified in Section 5.14, he or she will not, directly or indirectly, as
an employee, consultant or otherwise, compete with Company by providing
services relating to retail or non-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, in whole or in material part, in the United
States, Canada and/or Puerto Rico, (a) engages in the retail sale of
jewelry, including, but not limited to, specialty jewelry retailers and other
retailers having jewelry divisions or departments, or (b) operates as a
vendor of jewelry, including, but not limited to, as a wholesaler, manufacturer
or direct importer of jewelry.  The
restrictions contained in this Section 2.3 will 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, subject to the terms
of Section 2.1, the above restrictions on competition are completely severable
and independent agreements supported by good and valuable consideration and, as
such, will 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 will
not render invalid or unenforceable any remaining restrictions on
competition.  Additionally, should an
arbitrator or a court of competent jurisdiction determine that the scope of any
provision of this Section 2.3 is too broad to be enforced as written, the
parties intend that the arbitrator or court reform the provision to such
narrower scope as it determines to be reasonable and enforceable.

 

9

 

2.4                               Agreement
Not to Solicit Employees.  Executive
covenants and agrees that during Executive’s employment with Company and
thereafter during the applicable Severance Period specified in Section 5.14,
Executive will not, on his or her own behalf or on behalf of any other person,
partnership, association, corporation, or other entity, (a) directly,
indirectly, or through a third party hire, cause to be hired or solicit any
employee of Company or its Affiliates or (b) in any manner attempt to
influence or induce any employee of Company or its Affiliates to leave the
employment of Company or its Affiliates, nor will he or she use or disclose to
any person, partnership, association, corporation or other entity any
information concerning the names and addresses of any employees of Company or
its Affiliates.  The restrictions
contained in this Section 2.4 will be tolled on a day-for-day basis for
each day during which Executive participates in any activity in violation of
such restriction.

 

The parties agree that, subject to the terms
of Section 2.1, the above restrictions on the solicitation of employees
are completely severable and independent agreements supported by good and
valuable consideration and, as such, will 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 the solicitation of employees will not render
invalid or unenforceable any remaining restrictions on the solicitation of
employees.  Additionally, should an
arbitrator or court of competent jurisdiction determine that the scope of any
provision of this Section 2.4 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.

 

2.5                               Nondisparagement.  Executive covenants and agrees that he or she
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 Company, its Affiliates, 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 will not (a) apply to
Communications between Executive and his or her spouse, 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 (subject to the provisions of Section 2.2);
or (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 other judicial or legal actions (subject to the provisions of Section 2.2).  Executive specifically agrees not to issue
any public statement concerning his or her employment by Company and/or the
cessation of such employment.

 

2.6                               Reasonableness
of Restrictions.  Executive agrees
that Executive and Company are engaged in a highly competitive business and,
due to Executive’s position with Company and the nature of Executive’s work,
Executive’s engaging in any business that is competitive with that of Company
will cause Company great and irreparable harm. 
Executive represents and warrants that the time, scope and geographic
area restricted by the foregoing Sections 2.2, 2.3, 2.4 and 2.5 pertaining to
confidential information, non-competition, non-solicitation, 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 2.2, 2.3, 2.4 and 2.5
pertaining to confidential information, non-competition, non-solicitation, and
non-disparagement are not outweighed by either the hardship to Executive or any
injury likely to the public.  If any 

 

10

 

arbitrator or court determines that any
portion of this Article II is invalid or unenforceable, the remainder of
this Article II will not thereby be affected and will be given full effect
without regard to the invalid provisions. 
If any court construes any of the provisions of this Article II, or
any part thereof, to be unreasonable because of the duration or scope of such
provision, such court will have the power to reduce the duration or scope of
such provision and to enforce such provision as so reduced.

 

2.7                               Enforcement.  Upon Executive’s employment with an entity
that is not an Affiliate of Company (a “Successor Employer”) during the
period that the provisions of this Article II remain in effect, Executive
will provide such Successor Employer with a copy of this Agreement and will
notify Company of such employment within thirty (30) days thereof.  Executive agrees that in the event of a
breach of the terms and conditions of this Article II by Executive,
Company will be entitled, if it so elects, to institute and prosecute
proceedings pursuant to Article III, either in law or in equity, against
Executive, to obtain damages for any such breach, or to enjoin Executive from
any conduct in violation of this Article II.  In the event Company seeks an injunction or
restraining order against Executive for breach of this Article II,
Executive waives any requirement that Company post bond in connection with such
request for relief.

 

2.8                               Recoupment.  Executive
acknowledges and agrees that Company’s remedies at law for a breach or
threatened breach of any of the provisions of this Article II of the
Agreement would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, Executive shall forfeit all payments otherwise due under
the Agreement and shall return to Company any Severance Pay made to Executive
prior to such forfeiture.

 

ARTICLE III

DISPUTE RESOLUTION

 

3.1                               Arbitration.  Company and Executive agree that any controversy
or claim (including all claims pursuant to common and statutory law) relating
to this Agreement or arising out of or relating to the subject matter of this
Agreement or Executive’s employment by Company will be resolved exclusively
through binding arbitration.  Subject to
the terms and any exceptions provided in this Agreement, the parties each waive
the right to a jury trial and waive the right to adjudicate their disputes
under this Agreement outside the arbitration forum provided for in this Agreement.  The arbitration will be administered by a
single neutral arbitrator admitted to practice law in Texas for a minimum of
ten years.  Any such arbitration
proceeding will take place in Dallas County, Texas and will be administered by
the American Arbitration Association (“AAA”) Dallas office in accordance
with its then-current applicable rules and procedures.  The arbitrator will have the authority to
award the same remedies, damages and costs that a court could award.  The arbitrator will 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.  This provision can
be enforced under the Federal Arbitration Act.

 

3.2                               Entitlement
to Injunctive Relief.  As the sole
exception to the exclusive and binding nature of the arbitration commitment set
forth above, Executive and Company agree that Company will have the right to
initiate an action in any state or federal court of competent jurisdiction in
Dallas County, Texas in order to request temporary, preliminary and permanent
injunctive or other equitable relief, including, without limitation, specific
performance, to enforce the terms of Sections 2.2, 2.3, 2.4, or 2.5 above,
without the necessity of proving inadequacy of legal remedies or irreparable
harm or posting bond; provided, however, that if Executive is 

 

11

 

engaging in activities prohibited by Section 2.2,
2.3, 2.4 or 2.5 above, outside of Dallas County, Texas, the parties hereby
agree that the Company may, at its sole option, bring an action in any court of
competent jurisdiction.  Nothing herein
shall prevent the Company from pursuing the same injunctive or equitable relief
in the arbitration proceedings.  Moreover,
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.

 

3.3                               Limitation
of Scope.  Should a court of competent
jurisdiction determine that the scope of the arbitration and related provisions
of this Agreement are 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.

 

3.4                               Payments
Pending Litigation and/or Arbitration. 
In the case of a Qualifying Termination other than during a Protection
Period, upon the material violation of any of the provisions of this Agreement
or a dispute regarding the subject matter of this Agreement, Company shall
cease payment of all Severance Pay and severance benefits pending the outcome
of litigation and/or arbitration on such issues pursuant to this Article III.  In the case of a Qualifying Termination
during a Protection Period, upon the material violation of any of the
provisions of this Agreement or a dispute regarding the subject matter of this
Agreement, Company shall continue payment of all Severance Pay and severance
benefits pending the outcome of litigation and/or arbitration pursuant to this Article Ill
subject to being reimbursed if so ordered in any such litigation or
arbitration.

 

3.5                               Fees
and Expenses.  If Company or
Executive sues in court or brings an arbitration action against the other for a
breach of any provision of this Agreement or regarding any dispute arising from
the subject matter of this Agreement, the prevailing party will be entitled to
recover its attorneys’ fees, court costs, arbitration expenses, and its portion
of the fees charged by AAA and/or the individual arbitrator, as applicable,
regardless of which party initiated the proceedings.  If there is no prevailing party, the fees
charged by AAA and/or the individual arbitrator will be borne equally by Company
and Executive, and Company and Executive will each bear their own costs and
attorneys’ fees incurred in arbitration. 
In the event that Executive prevails on at least one material issue,
Executive will be deemed to be the prevailing party; provided, however, that if
Executive does not prevail on at least one material issue, the Company shall be
deemed to be the prevailing party.

 

3.6                               Right
of Offset.  If Executive is at any
time indebted to Company, or otherwise obligated to pay money to Company for
any reason, Company, at its election, may offset amounts otherwise payable to
Executive under this Agreement against any such indebtedness or amounts due
from Executive to Company, to the extent permitted by law.

 

3.7                               Other
Matters and Acknowledgement.  All
proceedings conducted pursuant to this agreement to arbitrate, including any
order, decision or award of the arbitrator, will be kept confidential by all
parties except to the extent necessary to enforce the award.  EXECUTIVE ACKNOWLEDGES THAT, BY SIGNING THIS
AGREEMENT, EXECUTIVE IS WAIVING ANY RIGHT THAT EXECUTIVE MAY HAVE TO A
JURY TRIAL OR A COURT TRIAL OF ANY EMPLOYMENT-RELATED CLAIM ALLEGED BY
EXECUTIVE.

 

12

 

ARTICLE IV

MISCELLANEOUS PROVISIONS

 

4.1                               Executive
Acknowledgement.  Executive is entering
into this Agreement of his or her own free will.  Executive acknowledges that he or she has had
adequate opportunity to review this Agreement and consult with counsel of his
or her own choosing.  Executive
represents that he or she has read and understands this Agreement, he or she is
fully aware of this Agreement’s legal effect and has not acted in reliance upon
any statements made by Company other than those set forth in writing in the
Agreement.

 

4.2                               At
Will Employment.  Notwithstanding any
provision in this Agreement to the contrary, Executive hereby acknowledges and
agrees that Executive’s employment with Company is for an unspecified duration
and constitutes “at-will” employment, and Executive further acknowledges and
agrees that this employment relationship may be terminated at any time, with or
without Cause or for any or no Cause, at the option either of Company or
Executive.

 

4.3                               Successors
and Assigns.  The rights and
obligations of Company under this Agreement will inure to the benefit of and will
be binding upon the successors and assigns of Company.  Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, sale of assets or
otherwise) to all or substantially all of the business and/or assets of Company,
by a written agreement in form and substance reasonably satisfactory to
Executive, to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that Company would be required to perform it if
no such succession had taken place.  This
Agreement is personal to Executive and without the prior written consent of
Company is not assignable by Executive otherwise than by will or the laws of
descent and distribution.  This Agreement
will inure to the benefit of and be enforceable by Executive’s personal and
legal representatives, executors, administrators, heirs, distributes, devisees
and legatees.

 

4.4                               Amendment.  This agreement may be amended or terminated
at any time by Company, by a resolution of the Board of Directors of Company or
the Compensation Committee thereof, the substance of which is promptly
communicated to Executive; provided that, without the written consent of
Executive, no such termination of this Agreement or amendment reducing any
benefits provided hereunder shall be effective prior to the expiration of the
one-year anniversary of the adoption of such resolution; and provided, further,
that without the written consent of Executive, no amendment or termination
shall become effective during a Protection Period.  No amendment or termination shall affect any
vested rights or benefits to which Executive is entitled at the effective time
of such amendment or termination. 
Otherwise, the Agreement may be amended or terminated only as provided
in Section 1.7 or by an instrument in writing signed by Company and
Executive.

 

4.5                               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 will be fully severable; this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement; and
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance from this Agreement. 
Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as part of this Agreement a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.

 

13

 

4.6                               Integration.  The provisions of this Agreement constitute
the entire and complete understanding and agreement between the parties with
respect to the subject matter hereof, and supersede all prior and
contemporaneous oral and written agreements, representations and understandings
of the parties, including without limitation The Executive Severance Plan for
Zale Corporation and its Affiliates and any Change of Control Agreement or
employment agreement (including any offer letter) between Executive and
Company, which are hereby terminated with respect to Executive.

 

4.7                               Choice
of Law; Forum Selection.  THIS
AGREEMENT WILL BE EXCLUSIVELY GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS
OF TEXAS OR ANY OTHER JURISDICTION, AND, WHERE APPLICABLE, THE LAWS OF THE
UNITED STATES.

 

The parties hereby agree that any action to
enforce the arbitrator’s award shall be filed exclusively in a state or federal
court of competent jurisdiction in Dallas County, Texas and the parties hereby
consent to the exclusive jurisdiction of such court; provided, however, that nothing
herein shall preclude the parties’ rights to conduct collection activities in
the courts of any jurisdiction with respect to the order or judgment entered
upon the arbitrator’s award by the Texas court.

 

4.8                               Survival.  The provisions of Article II, Article III,
this Article IV and Article V will survive the termination of this
Agreement.  The existence of any claim or
cause of action of Executive against the Company, whether predicated on this
Agreement or otherwise, will 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 Article II.

 

4.9                               No
Waiver.  No waiver by either party at
any time of any breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by the other party will be
deemed a waiver of similar or dissimilar provisions or conditions at any time.

 

4.10                        Notice.  For all purposes of this Agreement, all
communications required or permitted to be given under this Agreement will be
in writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof confirmed),
or five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or two business days
after having been sent by a nationally recognized overnight courier service,
addressed to Company at its principal executive office, to Company’s General
Counsel, and to Executive at Executive’s principal residence, or to such other
address as any party may have furnished to the other in writing, except that
notices of change of address will be effective only upon receipt.

 

4.11                        Counterparts.  This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.

 

4.12                        Construction.  This Agreement is deemed to be drafted
equally by both Executive and Company and will be construed as a whole and
according to its fair meaning.  Any
presumption or principle that the language of this Agreement is to be construed
against any party will not apply.  The
headings in this Agreement are only for convenience and are not intended to
affect construction or interpretation. 
Any references to paragraphs, subparagraphs, sections, subsections or
clauses are to those parts of this Agreement, unless the context clearly
indicates to the contrary.  Also, unless
the context clearly indicates to the 

 

14

 

contrary, (a) the plural includes the
singular and the singular includes the plural; (b) “and” and “or” are each
used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every”
means “any and all”, and “each and every”; (d) “includes” and “including”
are each used without limitation; (e) “herein,” “hereof,” “hereunder” and
other similar compounds of the word “here” refer to the entire Agreement and
not to any particular paragraph, subparagraph, section or subsection; and (f) all
pronouns and any variations thereof will be deemed to refer to the masculine,
feminine, neuter; singular or plural as the identity of the entities or persons
referred to may require.

 

4.13                        No
Mitigation.  Except as provided in
Sections 1.1(c), 1.2(c) or 1.3(c) (regarding
continued welfare benefits), in no event will Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement and such
amounts will not be reduced whether or not Executive obtains other employment.

 

4.14                        Withholding.  Company may deduct and withhold from any amounts
payable under this Agreement such Federal, state, local, foreign or other taxes
as are required to be withheld pursuant to any applicable law or regulation.

 

ARTICLE V

DEFINITIONS

 

5.1                               “Affiliate” means a corporation that is a
member of a controlled group of corporations (as defined in section 414(b) of
the Code) that includes Company, any trade or business (whether or not
incorporated) that is in common control (as defined in section 414(c) of
the Code) with Company, or any entity that is a member of the same affiliated
service group (as defined in section 414(m) of the Code) as Company.

 

5.2                               “Base Compensation” means Executive’s gross
base salary at the time of his or her Termination of Employment before
reduction by any pre-tax contributions to the 401(k) Plan or any other
benefit plan maintained by the Company or its Affiliates or any other
deductions of any nature.

 

5.3                               [“Bonus” means the average of the annual
incentive bonus amount earned by Executive under the applicable Bonus Plan as
established by Company’s Board of Directors with respect to the three fiscal
years preceding the fiscal year in which the Termination of Employment occurs
(or such lesser period of Executive’s employment with the Company and its
Affiliates).]

 

[“Bonus”
means the amount payable to Executive, if any, under the Zale Corporation Bonus
Plan (or any successor plan providing generally for bonuses to senior
management of Company or its Affiliates) in accordance with the following:

 

	
  UNRELATED TO CHANGE OF

  CONTROL – SECTION 1.1

  	
   

  	
  RELATED TO A CHANGE OF

  CONTROL – SECTION 1.2

  	
   

  	
  DISABILITY OR DEATH –

  SECTIONS 1.3 AND 1.4

  
	
  Average Bonus

  	
   

  	
  Target Bonus

  	
   

  	
  None

  

 

For these purposes, (a) “Average
Bonus” will mean the average of the annual incentive bonus amount earned by
Executive under the applicable Bonus Plan as established by Company’s Board of
Directors with respect to the three fiscal years preceding the fiscal year in
which the Termination of Employment occurs (or such lesser period of Executive’s
employment with the Company and its Affiliates); and (b) “Target Bonus”
will 

 

15

 

mean the targeted annual
incentive bonus as determined under the applicable Bonus Plan as established by
Company’s Board of Directors for the fiscal year in which the Termination of
Employment occurs.]

 

5.4                               “Cause” means (a) Executive’s
indictment for a felony or a crime involving moral turpitude; (b) Executive’s
commission of an act constituting fraud, deceit or material misrepresentation
with respect to Company; (c) Executive’s recurrent use of alcohol or
prescribed medications at work or otherwise such that, in Company’s sole
discretion; Executive’s job performance is impaired or the use of any illegal
substances or drug such that, in Company’s sole discretion.  Executive’s job performance is impaired; (d) Executive’s
embezzlement of Company’s or its Affiliates’ assets or funds; and (e) Executive’s
commission of any negligent or willful act or omission that, in the cases of
clauses (b), (d) and (e) of this Section 5.4, 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 Company or any
Affiliate.

 

5.5                               “Change of Control” means any of the
following occurrences:

 

(a)                                  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 Company[; provided, however, a Change
in Control shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 30% of the voting stock of the Company as a
result of the acquisition of voting stock by the Company which reduces the
amount of Company voting stock outstanding; provided further, that if after
such acquisition by the Company such person becomes the beneficial owner of
additional Company voting stock that increases the percentage of outstanding
Company voting stock beneficially owned by such person, a Change in Control of
the Company shall then occur];

 

(b)                                 the
majority of the Board of Directors of Company consists of individuals other than
“incumbent” directors, which term means the members of the Board of Directors
on the date hereof; 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;

 

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

 

(d)                                 all
or substantially all of the assets or business of Company is disposed of
pursuant to a merger, consolidation or other transaction (unless the
stockholders of 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 Company immediately prior
to such merger, consolidation or other transaction, all of the voting stock or
other ownership interests of the entity or entities, if any, that succeed to
the business of Company); or

 

(e)                                  Company
combines with another company and is the surviving corporation but, immediately
after the combination, the stockholders of 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 

 

16

 

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 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.

 

5.6                               “COBRA” means the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended.

 

5.7                               “Code” means the Internal Revenue Code of
1986, as amended.

 

5.8                               “Disability” means, in Company’s sole
discretion, Executive becomes mentally or physically impaired or disabled such
that he or she is unable to perform his or her duties and responsibilities
hereunder for a period of at least one hundred twenty (120) days in the
aggregate during any one hundred fifty (150) consecutive day period.

 

5.9                               “Equity Plan” means any equity plan,
agreement or arrangement maintained or sponsored by Company in which Executive
is a participant.

 

5.10                        “401(k) Plan” means the Zale
Corporation Savings and Investment Plan or any other qualified retirement plan
with a cash or deferred arrangement that is maintained or sponsored by Company
or any Affiliate in which Executive is a participant.

 

5.11                        “Protection Period” means the period
beginning on the date that is six months prior to the occurrence of a Change of
Control and ending twenty-four (24) months following the occurrence of a Change
of Control.

 

5.12                        “Qualifying Termination”

 

(a)                                  In
the case of any Termination of Employment other than during a Protection
Period, ‘‘Qualifying Termination” shall mean:

 

(i)                                     the
Termination of Employment of Executive by Company for any reason other than
Cause, Disability, or death; or

 

(ii)                                  the
Termination of Employment of Executive by Executive for any of the following
reasons:

 

(A)                              a
material reduction by Company in Executive’s base salary or bonus eligibility
unless similar reductions apply to senior executives of Company and its
subsidiaries generally;

 

(B)                                relocation
of Company’s principal executive offices outside the Dallas/Fort Worth, Texas
Metroplex; or

 

(C)                                the
assignment to Executive by 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 Company or a material
adverse change in Executive’s titles 

 

17

 

or offices, unless such action is in lieu of
termination by Company of Executive’s employment due to Disability.

 

If Executive
believes that an event specified in this Section 5.12(a)(ii) has
occurred.  Executive must notify Company
of that belief within ninety (90) days following the occurrence of such
event.  Company will have thirty (30)
days following receipt of such notice (such period, the “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 Company does not take any of the foregoing actions within the
Designated Period, Executive may terminate his or her employment with Company
during the fourteen-day period following the expiration of the Designated
Period.  If, during the Designated Period,
Company determines that such an event exists Company shall either (A) undertake
to cure such event during the Designated Period and provide Executive with
written notice during the Designated Period of Company’s determination that
such event has been cured, or (B) provide written notice to Executive
during the Designated Period that it does not wish to cure such event, in which
case, Executive may terminate his or her employment during the fourteen-day
period following receipt of the notice specified in this clause (B).  If, during the Designated Period, Company
determines that (1) such event does not exist or (2) 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
Qualifying Termination; and (y) if Executive disagrees with Company’s
determination, Executive may file a claim pursuant to Article III within
thirty (30) days after Executive’s receipt of written notice of Company’s
determination.

 

(b)                                 In
the case of any Termination of Employment during a Protection Period, “Qualifying
Termination” shall mean:

 

(i)                                     the
Termination of Employment of Executive by Company for any reason other than
Cause, Disability, or death; or

 

(ii)                                  the
Termination of Employment of Executive by Executive for any of the following
reasons:

 

(A)                              the
assignment to Executive by Company of duties inconsistent with, or the
reduction, other than due solely to the fact that 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 a material adverse change in Executive’s
titles or offices as in effect immediately prior to a Change of Control, or any
removal of Executive from or any failure to re-elect Executive to any of such
positions, except, in each of the foregoing cases, in connection with
Termination of Employment by Company due to Cause, Disability, or death;

 

(B)                                a
reduction by Company in Executive’s base salary or bonus eligibility as in
effect on the date of a Change of Control;

 

(C)                                relocation
of Company’s principal executive offices outside the Dallas/Fort Worth, Texas
Metroplex;

 

18

 

(D)                               Company’s
requirement that Executive be based anywhere other than at Company’s principal
executive offices in the Dallas/Fort Worth, Texas Metroplex area, or if
Executive agrees to a relocation outside the area, Company’s failure to
reimburse Executive for moving and all other expenses incurred with such move;

 

(E)                                 Company’s
failure to continue in effect any Company-sponsored plan that is in effect on
the date of a Change of Control (or replacement plans therefore that in the
aggregate provide substantially the same or more favorable benefits) that is
either a 401(k) Plan or provides incentive or bonus compensation or
reimbursement for reasonable expenses incurred by Executive in connection with
the performance of duties with Company;

 

(F)                                 any
material breach by Company of any provision of this Agreement; or

 

(G)                                any
failure by Company to obtain the assumption of this Agreement by any successor
or assign of Company.

 

If Executive
believes that an event specified in this Section 5.12(b)(ii) has
occurred, Executive must notify Company of that belief within ninety (90) days
following the occurrence of such event. 
Company will have thirty (30) days following receipt of such notice
(such period, the “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 Company does not take any of
the foregoing actions within the Designated Period;, Executive may terminate
his or her employment with Company during the fourteen-day period following the
expiration of the Designated Period.  If,
during the Designated Period, Company determines that such an event exists
Company shall either (A) undertake to cure such event during the
Designated Period and provide Executive with written notice during the Designated
Period of Company’s determination that such event has been cured, or (B) provide
written notice to Executive during the Designated Period that it does not wish
to cure such event, in which case, Executive may terminate his or her
employment during the fourteen-day period following receipt of the notice
specified in this clause (B).  If, during
the Designated Period, Company determines that (1) such event does not
exist or (2) 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 Qualifying Termination, and (y) if
Executive disagrees with Company’s determination, Executive may file a claim
pursuant to Article III within thirty (30) days after Executive’s receipt
of written notice of Company’s determination.

 

(c)                                  Notwithstanding
anything to the contrary contained herein, for purposes of Section 1.2, a
Qualifying Termination shall occur only to the extent that Executive incurs a “separation
from service” with Company within the meaning of Treasury Regulation Section 1.409A-1(h).

 

(d)                                 In
the event that Executive is employed by a subsidiary of Company, including Zale
Delaware, Inc., and not Company, for purposes of the term “Qualifying
Termination,” “Company” will include such subsidiary.

 

19

 

5.13                        “Severance Pay” means cash severance
payments in an amount equal to the product of (a) the sum of Executive’s
Base Compensation as of Termination of Employment and, in the cases of Sections
1.1 and 1.2, Bonus (as specified in Section 5.3), and (b) the
applicable Severance Period specified in Section 5.14 provided, however,
that in the event of payment under Sections 1.3 or 1.4, the amount of any
payment received by Executive pursuant to any death or disability plan or
insurance maintained by Company on Executive’s behalf shall be deducted from
any amounts payable pursuant to this Agreement.

5.14        “Severance Period” means the following
period, based on whether Executive’s Qualifying Termination is during a
Protection Period or due to Disability or death: 

 

	
  QUALIFYING TERMINATION

  OTHER THAN DURING A

  PROTECTION PERIOD -

  SECTION 1.1

  	
   

  	
  QUALIFYING TERMINATION 

  DURING A PROTECTION

  PERIOD - SECTION 1.2

  	
   

  	
  TERMINATION OF

  EMPLOYMENT DUE TO

  DISABILITY OR DEATH -

  SECTIONS 1.3 AND 1.4

  
	
  [1.5] [2] years

  	
   

  	
  3 years

  	
   

  	
  1 year

  

 

5.15                        “Termination of Employment” means the date
on which Executive ceases to perform duties for Company or its Affiliate(s).

 

20

 

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

 

	
  ZALE CORPORATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTIVE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

21

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