Document:

exv10w4xay

 

Exhibit 10.4a

ZALE CORPORATION

2003 STOCK INCENTIVE PLAN

(As Amended Through August 2006)

1. PREAMBLE

     This Zale Corporation 2003 Stock Incentive Plan, as it may be amended from time to time (the
“Plan”), is intended to promote the interests of Zale Corporation, a Delaware corporation (together
with its Subsidiaries, the “Company”), and its stockholders by providing officers and other
employees (including directors who are employees) of the Company with appropriate incentives and
rewards to encourage them to enter into and continue in the employ of the Company and to acquire a
proprietary interest in the long-term success of the Company.

2. DEFINITIONS

     As used in the Plan, the following definitions apply to the terms indicated below:

     (a) “Board of Directors” shall mean the Board of Directors of the Company.

     (b) “Cause,” when used in connection with the termination of a Participant’s (as defined
herein) employment by the Company, shall mean (i) the willful and continued failure by the
Participant substantially to perform his or her duties and obligations to the Company (other than
any such failure resulting from his or her incapacity due to physical or mental illness) or (ii)
the willful engaging by the Participant in misconduct which is materially injurious to the Company.
For purposes of this Section 2(b), no act, or failure to act, on a Participant’s part shall be
considered “willful” unless done, or omitted to be done, by the Participant in bad faith and
without reasonable belief that his or her action or omission was in the best interests of the
Company. The Company shall determine whether a termination of employment is for Cause and shall
notify the Committee of such a determination.

     (c) “Change in Control” shall mean any of the following occurrences:

     (1) any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other
than the Company or any trustee or other fiduciary holding securities under an employee benefit
plan of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company’s then outstanding securities;

     (2) during any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors, and any new director (other than a director designated by
a person who has entered into an agreement with the Company to effect a transaction described in
clause (1), (3) or (4) of this definition) whose election by the Board of Directors or nomination
for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of the

 

 

period or whose election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;

     (3) the stockholders of the Company approve a merger or consolidation of the Company with any
other entity, other than (i) a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction) in which no
“person” (as hereinabove defined) acquires more than 50% of the combined voting power of the
Company’s then outstanding securities; or

     (4) the stockholders of the Company approve a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all or substantially all of the
Company’s assets.

     (d) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (e) “Committee” shall mean the Compensation Committee of the Board of Directors or such other
committee as the Board of Directors shall appoint from time to time to administer the Plan;
provided, that the Committee shall at all times consist of two or more persons, each of whom shall
be a member of the Board of Directors. To the extent required for transactions under the Plan to
qualify for the exemptions available under Rule 16b-3 (as defined herein), members of the Committee
(or any subcommittee thereof) shall be “non-employee directors” within the meaning of Rule 16b-3.
To the extent required for compensation realized from Incentive Awards (as defined herein) under
the Plan to be deductible by the Company pursuant to Section 162(m) of the Code, members of the
Committee (or any subcommittee thereof) shall be “outside directors” within the meaning of such
section.

     (f) “Company Stock” shall mean the common stock, par value $.01 per share, of the Company.

     (g) “Disability” shall mean: (1) any physical or mental condition that would qualify a
Participant for a disability benefit under the long-term disability plan maintained by the Company
and applicable to him or her or (2) when used in connection with the exercise of an Incentive Stock
Option (as defined herein) following termination of employment, disability within the meaning of
Section 422(e)(3) of the Code.

     (h) “Effective Date” shall mean November 6, 2003.

     (i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (j) The “Fair Market Value” of a share of Company Stock shall be the price at which the
Company Stock was last sold in the principal United States market for the Company Stock as of
the date for which the Fair Market Value is determined or, in the event that the price of a

 

 

share of Company Stock shall not be so reported, the Fair Market Value of a share of
Company Stock shall be determined by the Committee in its absolute discretion.

     (k) “Incentive Award” shall mean an Option, Tandem SAR, Stand-Alone SAR, share of Restricted
Stock, share of Phantom Stock, Stock Bonus, or a Restricted Stock Unit (each defined herein)
granted pursuant to the terms of the Plan.”

     (l) “Incentive Stock Option” shall mean an Option that is an “incentive stock option” within
the meaning of Section 422 of the Code.

     (m) “Issue Date” shall mean the date established by the Committee on which Certificates
representing shares of Restricted Stock shall be issued by the Company pursuant to the terms of
Section 10(e).

     (n) “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.

     (o) “Option” shall mean an option to purchase shares of Company Stock granted pursuant to
Section 7.

     (p) “Participant” shall mean an employee of the Company to whom an Incentive Award is granted
pursuant to the Plan and, upon his or her death, his or her successors, heirs, executors and
administrators, as the case may be.

     (q) A share of “Phantom Stock” shall mean the right, granted pursuant to Section 11, to
receive in cash the Fair Market Value of a share of Company Stock.

     (r) “Plan Agreement” shall mean the written agreement between the Company and a Participant
or other document approved by the Committee evidencing an Incentive Award.

     (s) A share of “Restricted Stock” shall mean a share of Company Stock which is granted
pursuant to the terms of Section 10 hereof and which is subject to the restrictions set forth in
Section 10(c).

     (t) “Rule 16b-3” shall mean the rule thus designated as promulgated under the Exchange Act.

     (u) “Stand-Alone SAR” shall mean a stock appreciation right granted pursuant to Section 9
which is not related to any Option.

     (v) “Stock Bonus” shall mean a bonus payable in shares of Company Stock granted pursuant to
Section 12.

     (w) “Subsidiary” shall mean any corporation or other entity in which, at the time of
reference, the Company owns, directly or indirectly, stock or similar interests comprising more
than 50 percent of the combined voting power of all outstanding securities of such entity.

 

 

          (x) “Tandem SAR” shall mean a stock appreciation right granted pursuant to Section 8 which is
related to an Option.

          (y) “Vesting Date” shall mean the date established by the Committee on which a share of
Restricted Stock or Phantom Stock may vest.

          (z) “Performance Goals” means the measurable performance objectives, if any, established by
the Committee for a Performance Period that are to be achieved with respect to an Incentive Award
granted to a Participant under the Plan. Performance Goals may be described in terms of
Company-wide objectives or in terms of objectives that are related to performance of the division,
department or function within the Company in which the Participant receiving the Incentive Award is
employed or on which the Participant’s efforts have the most influence. The achievement of the
Performance Goals established by the Committee for any Performance Period will be determined
without regard to the effect on such Performance Goals of any acquisition or disposition by the
Company of a trade or business, or of substantially all of the assets of a trade or business,
during the Performance Period and without regard to any change in accounting standards by the
Financial Accounting Standards Board or any successor entity. The Performance Goals established by
the Committee for any Performance Period under the Plan will consist of one or more of the
following:

	 	(i)	 	earnings per share and/or growth in earnings per share in relation to target objectives;
	 
	 	(ii)	 	operating cash flow and/or growth in operating cash flow in relation to target
objectives;
	 
	 	(iii)	 	cash available in relation to target objectives;
	 
	 	(iv)	 	net income and/or growth in net income in relation to target objectives;
	 
	 	(v)	 	revenue and/or growth in revenue in relation to target objectives;
	 
	 	(vi)	 	total shareholder return (measured as the total of the appreciation of and dividends
declared on the Common Stock) in relation to target objectives;
	 
	 	(vii)	 	return on invested capital in relation to target objectives;
	 
	 	(viii)	 	return on shareholder equity in relation to target objectives;
	 
	 	(ix)	 	return on assets in relation to target objectives;
	 
	 	(x)	 	return on common book equity in relation to target objectives;
	 
	 	(xi)	 	economic value added (relative or absolute); and
	 
	 	(xiv)	 	working capital targets.

 

 

If the Committee determines that, as a result of a change in the business, operations, corporate
structure or capital structure of the Company, or the manner in which the Company conducts its
business, or any other events or circumstances, the Performance Goals are no longer suitable, the
Committee may in its discretion modify such Performance Goals or the related minimum acceptable
level of achievement, in whole or in part, with respect to a period as the Committee deems
appropriate and equitable, except where such action would result in the loss of the otherwise
available exemption of the Incentive Award under Section 162(m) of the Code. In such case, the
Committee will not make any modification of the Performance Goals or minimum acceptable level of
achievement.

     (aa) “Performance Period” means, with respect to an Incentive Award, a period of time within
which the Performance Goals relating to such Incentive Award are to be measured. The Performance
Period will be established by the Committee at the time the Incentive Award is granted.

     (bb) “Restricted Stock Unit” refers to a restricted stock unit as described in Section 10A.

     (cc) “Stock Incentive Program” means a written program established by the Committee, pursuant
to which Incentive Awards are awarded under the Plan under terms, conditions and restrictions set
forth in such written program.

3. STOCK SUBJECT TO THE PLAN

     (a) Shares Available for Awards

     The total number of shares of Company Stock with respect to which Incentive Awards may be
granted shall not exceed 6,000,000 shares. Such shares may be authorized but unissued Company
Stock or authorized and issued Company Stock held in the Company’s treasury or acquired by the
Company for the purposes of the Plan. The Committee may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions
on transferability as may apply to such shares pursuant to the Plan.

     The grant of a Tandem SAR shall not reduce the number of shares of Company Stock with respect
to which Incentive Awards may be granted pursuant to the Plan.

     (b) Individual Limitation

     The total number of shares of Company Stock subject to Options and to Stand-Alone SARS,
awarded to any one employee during any fiscal year of the Company, shall not exceed 1,200,000
shares. Determinations under the preceding sentence shall be made in a manner that is consistent
with Section 162(m) of the Code and regulations promulgated thereunder. The provisions of this
Section 3(b) shall not apply in any circumstance with respect to which the Committee determines
that compliance with Section 162(m) of the Code is not necessary.

     (c) Adjustment for Change in Capitalization

 

 

     If there is any change in the outstanding shares of Company Stock by reason of a stock
dividend or distribution, stock split-up, recapitalization, combination or exchange of shares, or
by reason of any merger, consolidation, spinoff or other corporate reorganization in which the
Company is the surviving corporation, the number of shares available for issuance both in the
aggregate and with respect to each outstanding Incentive Award, the price per share under each
outstanding Incentive Award, and the limitation set forth in Section 3(b), shall be proportionately
adjusted by the Committee, whose determination shall be final and binding. After any adjustment
made pursuant to this Section 3(c), the number of shares subject to each outstanding Incentive
Award shall be rounded to the nearest whole number.

     (d) Re-use of Shares

     The following shares of Company Stock shall again become available for Incentive Awards: any
shares subject to an Incentive Award that remain unissued upon the cancellation or termination of
such Award for any reason whatsoever; any shares of Restricted Stock forfeited, provided that any
dividends paid on such shares are also forfeited; and any shares in respect of which a stock
appreciation right is settled for cash.

     (e) Total Grants for Awards Other than Options

     The total number of shares of Common Stock with respect to which Tandem SARs, Stand Alone
SARs, shares of Restricted Stock, Restricted Stock Units, shares of Phantom Stock and Stock Bonuses
may collectively be granted shall not exceed 30% of the total number of shares of Common Stock with
respect to which all Incentive Awards have been or may be granted under the Plan.

     (f) No Repricing

     Absent stockholder approval, neither the Committee nor the Board of Directors shall have any
authority, with or without the consent of the affected holders of Incentive Awards, to “reprice” an
Incentive Award after the date of its initial grant with a lower exercise price in substitution for
the original exercise price. This paragraph may not be amended, altered or repealed by the Board
of Directors or the Committee without approval of the stockholders of the Company.

4. ADMINISTRATION OF THE PLAN

     The Plan shall be administered by the Committee. The Committee shall from time to time
designate the employees of the Company who shall be granted Incentive Awards and the amount, type
and other features of each Incentive Award.

     The Committee shall have full authority to administer the Plan, including authority to
interpret and construe any provision of the Plan and the terms of any Incentive Award issued under
it and to adopt such rules and regulations for administering the Plan as it may deem necessary or
appropriate. The Committee shall determine whether an authorized leave of absence shall constitute
termination of employment. Decisions of the Committee shall be final

 

 

and binding on all parties. Notwithstanding anything to the contrary contained herein, the Board
of Directors may, in its sole discretion, at any time and from time to time, resolve to administer
the Plan, in which case the term “Committee” as used herein shall be deemed to mean the Board of
Directors.

     The Committee may, in its absolute discretion, without amendment to the Plan, (i) accelerate
the date on which any Option or Stand-Alone SAR granted under the Plan becomes exercisable, (ii)
waive or amend the operation of Plan provisions respecting exercise after termination of employment
or otherwise adjust any of the terms of such Option or Stand-Alone SAR and (iii) accelerate the
Vesting Date or Issue Date, or waive any condition imposed hereunder, with respect to any share of
Restricted Stock or Phantom Stock or otherwise adjust any of the terms applicable to such share.

     No member of the Committee shall be liable for any action, omission or determination relating
to the Plan, and the Company shall indemnify and hold harmless each member of the Committee and
each other director or employee of the Company to whom any duty or power relating to the
administration or interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a claim with the
approval of the Committee) arising out of any action, omission or determination relating to the
Plan, unless, in either case, such action, omission or determination was taken or made by such
member, director or employee in bad faith and without reasonable belief that it was in the best
interests of the Company.

5. ELIGIBILITY

     The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be
such employees of the Company (including officers of the Company, whether or not they are directors
of the Company) as the Committee shall designate from time to time. Directors who are not
employees or officers of the Company shall not be eligible to receive Incentive Awards under the
Plan.

6. AWARDS UNDER THE PLAN; PLAN AGREEMENTS

     The Committee may grant Options, Tandem SARS, Stand-Alone SARS, shares of Restricted Stock,
shares of Phantom Stock, Stock Bonuses, and Restricted Stock Units in such amounts and with such
terms and conditions as the Committee shall determine, subject to the provisions of the Plan.

     Each Incentive Award granted under the Plan (except an unconditional Stock Bonus) shall be
evidenced by a Plan Agreement which shall contain such provisions as the Committee may in its sole
discretion deem necessary or desirable. By accepting an Incentive Award, a Participant thereby
agrees that the Incentive Award shall be subject to all of the terms and provisions of the Plan and
the applicable Plan Agreement.

     7. OPTIONS

 

 

     (a) Identification of Options

     Each Option shall be clearly identified in the applicable Plan Agreement as either an
Incentive Stock Option or a Non-Qualified Stock Option.

     (b) Exercise Price

     Each Plan Agreement with respect to an Option shall set forth the amount (the “exercise
price”) payable by the holder to the Company upon exercise of the Option. The exercise price per
share shall be determined by the Committee but shall in no event be less than the Fair Market Value
of a share of Company Stock on the date the Option is granted.

     (c) Term and Exercise of Options

     (1) Unless the applicable Plan Agreement provides otherwise, an Option shall become
cumulatively exercisable as to 25% of the shares covered thereby on each of the first, second,
third and fourth anniversaries of the date of grant. The Committee shall determine the expiration
date of each Option; provided, however, that no Incentive Stock Option shall be exercisable more
than ten years after the date of grant. Unless the applicable Plan Agreement provides otherwise,
no Option shall be exercisable prior to the first anniversary of the date of grant.

     (2) An Option may be exercised for all or any portion of the shares as to which it is
exercisable; provided, that no partial exercise of an Option shall be for an aggregate exercise
price of less than $1,000. The partial exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof.

     (3) An Option shall be exercised by delivering notice to the Company’s principal office, to
the attention of its Secretary (or the Secretary’s designee), no less than one business day in
advance of the effective date of the proposed exercise. Such notice shall be accompanied by the
applicable Plan Agreement, shall specify the number of shares of Company Stock with respect to
which the Option is being exercised and the effective date of the proposed exercise and shall be
signed by the Participant or other person then having the right to exercise the Option. Such
notice may be withdrawn at any time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise. Payment for shares of Company Stock
purchased upon the exercise of an Option shall be made on the effective date of such exercise by
one or a combination of the following means: (i) in cash, by certified check, bank cashier’s check
or wire transfer; (ii) subject to the approval of the Committee, in shares of Company Stock owned
by the Participant for at least six months prior to the date of exercise and valued at their Fair
Market Value on the effective date of such exercise; or (iii) subject to the approval of the
Committee, by such other provision as the Committee may from time to time authorize. Any payment
in shares of Company Stock shall be effected by the delivery of such shares to the Secretary (or
the Secretary’s designee) of the Company, duly endorsed in blank or accompanied by stock powers
duly executed in blank, together with any other documents and evidences as the Secretary (or the
Secretary’s designee) of the Company shall require.

 

 

     (4) Certificates for shares of Company Stock purchased upon the exercise of an Option shall be
issued in the name of the Participant or other person entitled to receive such shares, and
delivered to the Participant or such other person as soon as practicable following the effective
date on which the Option is exercised.

     (d) Limitations on Incentive Stock Options

     (1) To the extent that the aggregate Fair Market Value of shares of Company Stock with
respect to which Incentive Stock Options are exercisable for the first time by a Participant during
any calendar year under the Plan and any other stock option plan of the Company (or any “subsidiary
corporation” of the Company within the meaning of Section 424 of the Code) shall exceed $100,000,
or such higher value as may be permitted under Section 422 of the Code, such Options shall be
treated as Non-Qualified Stock Options. Such Fair Market Value shall be determined as of the date
on which each such Incentive Stock Option is granted.

     (2) No Incentive Stock Option may be granted to an individual if, at the time of the proposed
grant, such individual owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (or any “subsidiary corporation” of the Company within the
meaning of Section 424 of the Code), unless (i) the exercise price of such Incentive Stock Option
is at least 110% of the Fair Market Value of a share of Company Stock at the time such Incentive
Stock Option is granted and (ii) such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock Option is granted.

     (e) Effect of Termination of Employment

     (1) Unless the applicable Plan Agreement provides or the Committee shall determine otherwise,
in the event that the employment of a Participant with the Company shall terminate for any reason
other than Cause, Disability or death: (i) Options granted to such Participant, to the extent that
they were exercisable at the time of such termination, shall remain exercisable until the date that
is three months after such termination, on which date they shall expire; and (ii) Options granted
to such Participant, to the extent that they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such termination. The three-month period
described in this Section 7(e)(1) shall be extended to one year in the event of the Participant’s
death during such three-month period. Notwithstanding the foregoing, no Option shall be exercisable
after the expiration of its term.

     (2) Unless the applicable Plan Agreement provides or the Committee shall determine otherwise,
in the event that the employment of a Participant with the Company shall terminate on account of
the Disability or death of the Participant: (i) Options granted to such Participant, to the extent
that they were exercisable at the time of such termination, shall remain exercisable until the
first anniversary of such termination, on which date they shall expire; and (ii) Options granted to
such Participant, to the extent that they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such termination. Notwithstanding the
foregoing, no Option shall be exercisable after the expiration of its term.

 

 

     (3) In the event of the termination of a Participant’s employment for Cause, all outstanding
Options granted to such Participant shall expire at the commencement of business on the date of
such termination.

(f) Acceleration of Exercise Date Upon Change in Control

     Upon the occurrence of a Change in Control, each Option granted under the Plan and outstanding
at such time shall become fully and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the Plan. In addition, in the
event of a potential Change in Control, the Committee may in its discretion, cancel any outstanding
Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of
such Options based upon the price per share of Common Stock to be received by other shareholders of
the Company in the Change in Control less the exercise price of each Option.

8. TANDEM SARS

     The Committee may grant in connection with any Option granted hereunder one or more Tandem
SARS relating to a number of shares of Company Stock less than or equal to the number of shares of
Company Stock subject to the related Option. A Tandem SAR may be granted at the same time as, or,
in the case of a Non-Qualified Stock Option, subsequent to the time that its related Option is
granted.

     (a) Benefit Upon Exercise

     The exercise of a Tandem SAR with respect to any number of shares of Company Stock shall
entitle the Participant to a cash payment, for each such share, equal to the excess of (i) the Fair
Market Value of a share of Company Stock on the exercise date over (ii) the option exercise price
of the related Option. Such payment shall be made as soon as practicable after the effective date
of such exercise.

     (b) Term and Exercise of Tandem SAR

     (1) A Tandem SAR shall be exercisable only if and to the extent that its related Option is
exercisable.

     (2) The exercise of a Tandem SAR with respect to a number of shares of Company Stock shall
cause the immediate and automatic cancellation of its related Option with respect to an equal
number of shares. The exercise of an Option, or the cancellation, termination or expiration of an
Option (other than pursuant to this Section 8(b)(2)), with respect to a number of shares of Company
Stock shall cause the automatic and immediate cancellation of any related Tandem SARS to the extent
that the number of shares of Company Stock remaining subject to such Option is less than the number
of shares subject to such Tandem SARS.

     Tandem SARS shall be cancelled in the order in which they became exercisable.

 

 

     (3) A Tandem SAR may be exercised for all or any portion of the shares as to which it is
exercisable; provided, that no partial exercise of a Tandem SAR shall be for an aggregate exercise
price of the related Option of less than $1,000. The partial exercise of a Tandem SAR shall not
cause the expiration, termination or cancellation of the remaining portion thereof.

     (4) No Tandem SAR shall be assignable or transferable otherwise than together with its related
Option.

     (5) A Tandem SAR shall be exercised by delivering notice to the Company’s principal office, to
the attention of its Secretary (or the Secretary’s designee), no less than one business day in
advance of the effective date of the proposed exercise. Such notice shall be accompanied by the
applicable Plan Agreement, shall specify the number of shares of Company Stock with respect to
which the Tandem SAR is being exercised and the effective date of the proposed exercise and shall
be signed by the Participant or other person then having the right to exercise the Option to which
the Tandem SAR is related. Such notice may be withdrawn at any time prior to the close of business
on the business day immediately preceding the effective date of the proposed exercise.

9. STAND-ALONE SARS

     (a) Exercise Price

     The exercise price per share of a Stand-Alone SAR shall be determined by the Committee at the
time of grant, but shall in no event be less than the Fair Market Value of a share of Company Stock
on the date of grant.

     (b) Benefit Upon Exercise

     The exercise of a Stand-Alone SAR with respect to any number of shares of Company Stock shall
entitle the Participant to a cash payment, for each such share, equal to the excess of (i) the Fair
Market Value of a share of Company Stock on the exercise date over (ii) the exercise price of the
Stand-Alone SAR. Such payments shall be made as soon as practicable.

     (c) Term and Exercise of Stand-Alone SARS

     (1) Unless the applicable Plan Agreement provides otherwise, a Stand-Alone SAR shall become
cumulatively exercisable as to 25 percent of the shares covered thereby on each of the first,
second, third and fourth anniversaries of the date of grant. The Committee shall determine the
expiration date of each Stand-Alone SAR. Unless the applicable Plan Agreement provides otherwise,
no Stand-Alone SAR shall be exercisable prior to the first anniversary of the date of grant.

     (2) A Stand-Alone SAR may be exercised for all or any portion of the shares as to which it is
exercisable; provided, that no partial exercise of a Stand-Alone SAR shall be for an aggregate
exercise price of less than $1,000. The partial exercise of a Stand-Alone SAR shall not cause the
expiration, termination or cancellation of the remaining portion thereof.

 

 

     (3) A Stand-Alone SAR shall be exercised by delivering notice to the Company’s principal
office, to the attention of its Secretary (or the Secretary’s designee), no less than one business
day in advance of the effective date of the proposed exercise. Such notice shall be accompanied by
the applicable Plan Agreement, shall specify the number of shares of Company Stock with respect to
which the Stand-Alone SAR is being exercised, and the effective date of the proposed exercise, and
shall be signed by the Participant. The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately preceding the effective date of the proposed
exercise.

     (d) Effect of Termination of Employment

     The provisions set forth in Section 7(e) with respect to the exercise of Options following
termination of employment shall apply as well to such exercise of Stand-Alone SARS.

     (e) Acceleration of Exercise Date Upon Change in Control

     Upon the occurrence of a Change in Control, any Stand-Alone SAR granted under the Plan and
outstanding at such time shall become fully and immediately exercisable and shall remain
exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan.

10. RESTRICTED STOCK

     (a) Issue Date and Vesting Date

     At the time of the grant of shares of Restricted Stock, the Committee shall establish an Issue
Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares. The Committee
may divide such shares into classes and assign a different Issue Date and/or Vesting Date for each
class. If the grantee is employed by the Company on an Issue Date (which may be the date of
grant), the specified number of shares of Restricted Stock shall be issued in accordance with the
provisions of Section 10(e). Provided that all conditions to the vesting of a share of Restricted
Stock imposed pursuant to Section 10(b) are satisfied, and except as provided in Section 10(g),
upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such share
shall vest and the restrictions of Section 10(c) shall cease to apply to such share.

     (b) Conditions to Vesting

     At the time of the grant of shares of Restricted Stock, the Committee may impose such
restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems
appropriate. By way of example and not by way of limitation, the Committee may require, as a
condition to the vesting of any class or classes of shares of Restricted Stock, that the
Participant or the Company achieves such performance goals as the Committee may specify.

     (c) Restrictions on Transfer Prior to Vesting

 

 

     Prior to the vesting of a share of Restricted Stock, no transfer of a Participant’s rights
with respect to such share, whether voluntary or involuntary, by operation of law or otherwise,
shall be permitted. Immediately upon any attempt to transfer such rights, such share, and all of
the rights related thereto, shall be forfeited by the Participant.

     (d) Dividends on Restricted Stock

     The Committee in its discretion may require that any dividends paid on shares of Restricted
Stock shall be held in escrow until all restrictions on such shares have lapsed.

     (e) Issuance of Certificates

     (1) Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the
Company shall cause to be issued a stock certificate, registered in the name of the Participant to
whom such shares were granted, evidencing such shares; provided, that the Company shall not cause
such a stock certificate to be issued unless it has received a stock power duly endorsed in blank
with respect to such shares. Each such stock certificate shall bear the following legend:

The transferability of this certificate and the shares of stock represented hereby are
subject to the restrictions, terms and conditions (including forfeiture provisions and
restrictions against transfer) contained in the Zale Corporation 2003 Stock Incentive Plan
and related Plan Agreement, and such rules, regulations and interpretations as the Zale
Corporation Compensation Committee may adopt. Copies of the Plan, Plan Agreement and, if
any, rules, regulations and interpretations are on file in the office of the Secretary of
Zale Corporation, 901 West Walnut Hill Lane, Irving, Texas 75038-1003.

Such legend shall not be removed until such shares vest pursuant to the terms hereof.

     (2) Each certificate issued pursuant to this Section 10(e), together with the stock powers
relating to the shares of Restricted Stock evidenced by such certificate, shall be held by the
Company unless the Committee determines otherwise.

     (f) Consequences of Vesting

     Upon the vesting of a share of Restricted Stock pursuant to the terms of the Plan and the
applicable Plan Agreement, the restrictions of Section 10(c) shall cease to apply to such share.
Reasonably promptly after a share of Restricted Stock vests, the Company shall cause to be
delivered to the Participant to whom such shares were granted, a certificate evidencing such share,
free of the legend set forth in Section 10(e). Notwithstanding the foregoing, such share still may
be subject to restrictions on transfer as a result of applicable securities laws.

     (g) Effect of Termination of Employment

     (1) Unless the applicable Plan Agreement or the Committee provides otherwise, during the 90
days following termination of a Participant’s employment for any reason other than Cause, the
Company shall have the right to require the return of any shares to which restrictions

 

 

on transferability apply, in exchange for which the Company shall repay to the Participant (or the
Participant’s estate) any amount paid by the Participant for such shares. In the event that the
Company requires such a return of shares, it also shall have the right to require the return of all
dividends paid on such shares, whether by termination of any escrow arrangement under which such
dividends are held or otherwise.

     (2) In the event of the termination of a Participant’s employment for Cause, all shares of
Restricted Stock granted to such Participant which have not vested as of the date of such
termination shall immediately be returned to the Company, together with any dividends paid on such
shares, in return for which the Company shall repay to the Participant any amount paid for such
shares.

     (h) Effect of Change in Control

     Upon the occurrence of a Change in Control, all outstanding shares of Restricted Stock which
have not theretofore vested shall immediately vest.

10A. TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

     A Restricted Stock Unit shall entitle the Participant to receive, at a specified future date,
a number of shares of Company Stock equal to a specified or determinable number of Restricted Stock
Units granted by the Committee, or, in the Committee’s sole discretion at the time thereof, an
amount equal to the then Fair Market Value of such shares. At the time of the grant, the Committee
must determine the target number of Restricted Stock Units subject to a Restricted Stock Units
Incentive Award and (i) the period over which such Restricted Stock Unit shall vest and in what
proportions or (ii) the Performance Period and the Performance Goals applicable to the
determination of the ultimate settlement of the Restricted Stock Unit.

     (a) Settlement.

     Settlement with respect to Restricted Stock Units may be made by the Company in shares of
Company Stock, or in cash, as provided in the applicable Plan Agreement or Stock Incentive Program
or, in the absence of such provision, as the Committee may determine in its sole discretion.

     (b) Conditions to Settlement.

     Each Restricted Stock Unit granted under the Plan shall be settled at the end of the vesting
period or Performance Period or upon the occurrence of an event, and in such number of shares or
amount, as the Committee shall specify in the applicable Plan Agreement or Stock Incentive Program;
provided, however, that in no event will payment occur later than two and one-half (2
1/2) months after the later of (i) the end of the Participant’s first taxable year in
which the amount is no longer subject to a substantial risk of forfeiture, or (ii) the end of the
Company’s first taxable year in which the amount is no longer subject to a substantial risk of
forfeiture.

 

 

11. PHANTOM STOCK

     (a) Vesting Date

     At the time of the grant of shares of Phantom Stock, the Committee shall establish a Vesting
Date or Vesting Dates with respect to such shares. The Committee may divide such shares into
classes and assign a different Vesting Date for each class. Provided that all conditions to the
vesting of a share of Phantom Stock imposed pursuant to Section 11(c) are satisfied, and except as
provided in Section 11(d), upon the occurrence of the Vesting Date with respect to a share of
Phantom Stock, such share shall vest.

     (b) Benefit Upon Vesting

     Upon the vesting of a share of Phantom Stock, the Participant shall be entitled to receive in
cash, within 30 days of the date on which such share vests, an amount equal to the sum of (i) the
Fair Market Value of a share of Company Stock on the date on which such share of Phantom Stock
vests and (ii) the aggregate amount of cash dividends paid with respect to a share of Company Stock
during the period commencing on the date on which the share of Phantom Stock was granted and
terminating on the date on which such share vests.

     (c) Conditions to Vesting

     At the time of the grant of shares of Phantom Stock, the Committee may impose such
restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems
appropriate. By way of example and not by way of limitation, the Committee may require, as a
condition to the vesting of any class or classes of shares of Phantom Stock, that the Participant
or the Company achieves such performance goals as the Committee may specify.

     (d) Effect of Termination of Employment

     (1) Unless the applicable Plan Agreement or the Committee provides otherwise, shares of
Phantom Stock that have not vested, together with any dividends credited on such shares, shall be
forfeited upon the Participant’s termination of employment for any reason other than Cause.

     (2) In the event of the termination of a Participant’s employment for Cause, all shares of
Phantom Stock granted to such Participant which have not vested as of the date of such termination
shall immediately be forfeited, together with any dividends credited on such shares.

     (e) Effect of Change in Control

     Upon the occurrence of a Change in Control all outstanding shares of Phantom Stock which have
not theretofore vested shall immediately vest.

     12. STOCK BONUSES

 

 

     In the event that the Committee grants a Stock Bonus, a certificate for the shares of Company
Stock comprising such Stock Bonus shall be issued in the name of the Participant to whom such grant
was made and delivered to such Participant as soon as practicable after the date on which such
Stock Bonus is payable.

13. RIGHTS AS A STOCKHOLDER

     No person shall have any rights as a stockholder with respect to any shares of Company Stock
covered by or relating to any Incentive Award until the date of issuance of a stock certificate
with respect to such shares.

     Except as otherwise expressly provided in Section 3(c), no adjustment to any Incentive Award
shall be made for dividends or other rights for which the record date occurs prior to the date such
stock certificate is issued.

14. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD

     Nothing contained in the Plan or any Plan Agreement shall confer upon any Participant any
right with respect to the continuation of employment by the Company or interfere in any way with
the right of the Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease the compensation of
the Participant.

     No person shall have any claim or right to receive an Incentive Award hereunder. The
Committee’s granting of an Incentive Award to a Participant at any time shall neither require the
Committee to grant any other Incentive Award to such Participant or other person at any time nor
preclude the Committee from making subsequent grants to such Participant or any other person.

15. SECURITIES MATTERS

     (a) The Company shall be under no obligation to affect the registration pursuant to the
Securities Act of 1933 of any interests in the Plan or any shares of Company Stock to be issued
hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to
the contrary, the Company shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company
is advised by its counsel that the issuance and delivery of such certificates is in compliance with
all applicable laws, regulations of governmental authority and the requirements of the New York
Stock Exchange and any other securities exchange on which shares of Company Stock are traded.
Certificates evidencing shares of Company Stock issued pursuant to the terms hereof, may bear such
legends, as the Committee or the Company, in its sole discretion, deems necessary or desirable to
insure compliance with applicable securities laws.

     (b) The transfer of any shares of Company Stock hereunder shall be effective only at such
time as counsel to the Company shall have determined that the issuance and delivery of such shares
is in compliance with all applicable laws, regulations of governmental authority and the
requirements of the New York Stock Exchange and any other securities exchange on which

 

 

shares of Company Stock are traded. The Committee may, in its sole discretion, defer the
effectiveness of any transfer of shares of Company stock hereunder in order to allow the issuance
of such shares to be made pursuant to registration or an exemption from registration or other
methods for compliance available under federal or state securities laws. The Company shall inform
the Participant in writing of the Committee’s decision to defer the effectiveness of a transfer.
During the period of such a deferral in connection with the exercise of an Option, the Participant
may, by written notice, withdraw such exercise and obtain the refund of any amount paid with
respect thereto.

16. WITHHOLDING TAXES

     Whenever cash is to be paid pursuant to an Incentive Award, the Company shall have the right
to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax
requirements related thereto.

     Whenever shares of Company Stock are to be delivered pursuant to an Incentive Award, the
Company shall have the right to require the Participant to remit to the Company in cash an amount
sufficient to satisfy any federal, state and local withholding tax requirements related thereto.
With the approval of the Committee, which it shall have sole discretion to grant, a Participant may
satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of
Company Stock having a value equal to the amount of tax to be withheld. Such shares shall be
valued at their Fair Market Value on the date as of which the amount of tax to be withheld is
determined (the “Tax Date”). Fractional share amounts shall be settled in cash. Such a
withholding election may be made with respect to all or any portion of the shares to be delivered
pursuant to an Incentive Award. To the extent required for such a withholding of stock to qualify
for the exemption available under Rule 16b-3, such an election by a grantee whose transactions in
Company Stock are subject to Section 16(b) of the Exchange Act shall be: (i) subject to the
approval of the Committee in its sole discretion; (ii) irrevocable; (iii) made no sooner than six
months after the grant of the award with respect to which the election is made; and (iv) made at
least six months prior to the Tax Date unless such withholding election is in connection with
exercise of an Option and both the election and the exercise occur prior to the Tax Date in a
“window period” of ten business days beginning on the third day following release of the Company’s
quarterly or annual summary statement of sales and earnings.

17. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE

     If any Participant shall, in connection with the acquisition of shares of Company Stock under
the Plan, make the election permitted under Section 83(b) of the Code (i.e., an election to include
in gross income in the year of transfer the amounts specified in Section 83(b)), such Participant
shall notify the Company of such election within ten days of filing notice of the election with the
Internal Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Code Section 83(b).

 

 

18. NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER SECTION 421(b) OF THE CODE

     Each Plan Agreement with respect to an Incentive Stock Option shall require the Participant to
notify the Company of any disposition of shares of Company Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions) within ten days of such disposition.

19. AMENDMENT OR TERMINATION OF THE PLAN

     The Board of Directors may, at any time, suspend or terminate the Plan or revise or amend it
in any respect whatsoever; provided, however, that stockholder approval shall be required if and to
the extent required by Rule 16b-3 or by any comparable or successor exemption under which the Board
of Directors believes it is appropriate for the Plan to qualify, or if and to the extent the Board
of Directors determines that such approval is appropriate for purposes of satisfying Section 162(m)
or Section 422 of the Code. Nothing herein shall restrict the Committee’s ability to exercise its
discretionary authority pursuant to Section 4, which discretion may be exercised without amendment
to the Plan. No action hereunder may, without the consent of a Participant, reduce the
Participant’s rights under any outstanding Incentive Award.

20. NO OBLIGATION TO EXERCISE

     The grant to a Participant of an Option, Tandem SAR or Stand-Alone SAR shall impose no
obligation upon such Participant to exercise such Option, Tandem SAR or Stand-Alone SAR.

21. TRANSFERS UPON DEATH; NONASSIGNABILITY

     Upon the death of a Participant outstanding Incentive Awards granted to such Participant may
be exercised only by the executor or administrator of the Participant’s estate or by a person who
shall have acquired the right to such exercise by will or by the laws of descent and distribution.
No transfer of an Incentive Award by will or the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee to comply with all
the terms and conditions of the Incentive Award that are or would have been applicable to the
Participant and to be bound by the acknowledgments made by the Participant in connection with the
grant of the Incentive Award.

     During a Participant’s lifetime, the Committee may permit the transfer, assignment or other
encumbrance of an outstanding Option or outstanding shares of Restricted Stock unless (i) such
Option is an Incentive Stock Option and the Committee and the Participant intend that it shall
retain such status or (ii) the award is meant to qualify for the exemptions available under Rule
16b-3 and the Committee and the Participant intend that it shall continue to so qualify.

 

 

22. EXPENSES AND RECEIPTS

     The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company
in connection with any Incentive Award will be used for general corporate purpose

23. FAILURE TO COMPLY

     In addition to the remedies of the Company elsewhere provided for herein, failure by a
Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the
applicable Plan Agreement, unless such failure is remedied by such Participant (or beneficiary)
within ten days after notice of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in part, as the Committee, in its
sole discretion, may determine.

24. EFFECTIVE DATE AND TERM OF PLAN

     The Plan shall be effective as of the Effective Date. Unless earlier terminated by the Board
of Directors, the right to grant Incentive Awards under the Plan will terminate on the tenth
anniversary of the Effective Date. Incentive Awards outstanding at Plan termination will remain in
effect according to their terms and the provisions of the Plan.

25. APPLICABLE LAW

     Except to the extent preempted by any applicable federal law, the Plan will be construed and
administered in accordance with the laws of the State of Delaware, without reference to the
principles of conflicts of laws thereunder.exv10w6xay

 

Exhibit 10.6a

ZALE CORPORATION

OUTSIDE DIRECTORS’ 2005

STOCK INCENTIVE PLAN

(As Amended Through August 2006)

     1. PREAMBLE

     This Zale Corporation Outside Directors’ 2005 Stock Incentive Plan, as it may be amended from
time to time (the “Plan”), is intended to promote the interests of Zale Corporation, a Delaware
corporation (the “Company”), and its stockholders by providing directors of the Company who are not
employees of the Company with appropriate incentives and rewards to serve on the board of directors
of the Company and to acquire a proprietary interest in the long-term success of the Company.

     2. DEFINITIONS

     As used in the Plan, the following definitions apply to the terms indicated below:

     (a) “Board of Directors” shall mean the Board of Directors of the Company.

     (b) “Cause,” when used in connection with a Participant’s removal or resignation as a
member of the Board of Directors, shall mean (i) the willful and continued failure by the
Participant substantially to perform his or her duties and obligations to the Company (other
than any such failure resulting from his or her incapacity due to physical or mental
illness) or (ii) the willful engaging by the Participant in misconduct which is materially
injurious to the Company. For purposes of this Section 2(b), no act, or failure to act, on
a Participant’s part shall be considered “willful” unless done, or omitted to be done, by
the Participant in bad faith and without reasonable belief that his or her action or
omission was in the best interests of the Company. The Board of Directors shall determine
whether a Participant’s removal or resignation as a member of the Board of Directors is for
Cause.

     (c) “Change in Control” shall mean the first to occur of the following:

     (i) any “person,” as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the combined
voting power of the Company’s then outstanding securities;

     (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors, and any new director
(other than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iii) or (iv) of this
definition) whose election by the Board of Directors or nomination for election by
the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of

 

 

the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;

     (iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other entity, other than (i) a merger or consolidation that would
result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction) in
which no “person” (as hereinabove defined) acquires more than 50% of the combined
voting power of the Company’s then outstanding securities; or

     (iv) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.

     (d) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (e) “Company Stock” shall mean the common stock, par value $.01 per share, of the
Company.

     (f) “Disability” shall mean any physical or mental condition that would qualify a
Participant for a disability benefit under the long-term disability plan maintained by the
Company and applicable to him or her.

     (g) “Effective Date” shall mean November 11, 2005.

     (h) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (i) The “Fair Market Value” of a share of Company Stock shall be the price at which
the Company Stock was last sold in the principal United States market for the Company
Stock as of the date for which the Fair Market Value is determined or, in the event that
the price of a share of Company Stock shall not be so reported, the Fair Market Value of
a share of Company Stock shall be determined by the Committee in its absolute discretion.

     (j) “Incentive Award” shall mean an Option or a share of Restricted Stock granted
pursuant to the terms of the Plan.

     (k) “Issue Date” shall mean the date established by the Board of Directors on which
certificates representing shares of Restricted Stock shall be issued by the Company pursuant
to the terms of Section 8(e).

2

 

     (l) “Option” shall mean an option to purchase shares of Company Stock granted pursuant
to Section 6(a) and as described in Section 7.

     (m) “Participant” shall mean a member of the Board of Directors who is not an employee
of the Company or a Subsidiary.

     (n) A share of “Restricted Stock” shall mean a share of Company Stock which is granted
pursuant to the terms of Section 6(b) and as described in Section 8.

     (o) “Rule 16b-3” shall mean the rule thus designated as promulgated under the Exchange
Act.

     (p) “Subsidiary” shall mean any corporation or other entity in which, at the time of
reference, the Company owns, directly or indirectly, stock or similar interests comprising
more than 50 percent of the combined voting power of all outstanding securities of such
entity.

     (q) “Vesting Date” shall mean the date established by the Board of Directors on which a
share of Restricted Stock may vest.

     3. STOCK SUBJECT TO THE PLAN

     (a) Shares Available for Option or Restricted Stock Awards

     The total number of shares of Company Stock with respect to which Incentive Awards may be
granted shall not exceed 250,000 shares, with not more than 100,000 shares to be granted as
Restricted Stock awards. Such shares may be authorized but unissued Company Stock or authorized
and issued Company Stock held in the Company’s treasury or acquired by the Company for the purposes
of the Plan. The Board of Directors may direct that any stock certificate evidencing shares of
Company Stock issued pursuant to the Plan shall bear a legend setting forth such restrictions on
transferability as may apply to such shares pursuant to the Plan.

     (b) Adjustment for Change in Capitalization

     If there is any change in the outstanding shares of Company Stock by reason of a stock
dividend or distribution, stock split-up, recapitalization, combination or exchange of shares, or
by reason of any merger, consolidation, spin-off or other corporate reorganization in which the
Company is the surviving corporation, the number of shares available for issuance both in the
aggregate and with respect to each outstanding Incentive Award, and the price per share under each
outstanding Option, shall be proportionately adjusted by the Board of Directors, whose
determination shall be final and binding. After any adjustment made pursuant to this Section 3(b),
the number of shares subject to each outstanding Incentive Award shall be rounded to the nearest
whole number.

     (c) Re-use of Shares

3

 

     Any shares subject to an Incentive Award that remain unissued upon the cancellation or
termination of such Incentive Award for any reason whatsoever shall again become available for
Incentive Awards under the Plan.

     (d) No Repricing

     Absent stockholder approval, the Board of Directors shall not have any authority, with or
without the consent of the affected holders of Options, to “reprice” an Option after the date of
its initial grant with a lower exercise price in substitution for the original exercise price.
This paragraph may not be amended, altered or repealed by the Board of Directors without approval
of the stockholders of the Company.

     4. ADMINISTRATION OF THE PLAN

     The Plan shall be administered by the Board of Directors. The Board of Directors shall have
full authority to administer the Plan, including authority to interpret and construe any provision
of the Plan and the terms of any Incentive Awards issued under it and to adopt such rules and
regulations for administering the Plan as it may deem necessary or appropriate. Decisions of the
Board of Directors shall be final and binding on all parties. Unless determined otherwise by the
Board of Directors, the authority of the Board of Directors to administer the Plan is delegated to
the Compensation Committee of the Board of Directors.

     No member of the Board of Directors shall be liable for any action, omission or determination
relating to the Plan, and the Company shall indemnify and hold harmless each member of the Board of
Directors and each other director or employee of the Company to whom any duty or power relating to
the administration or interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a claim with the
approval of the Board of Directors) arising out of any action, omission or determination relating
to the Plan, unless, in either case, such action, omission or determination was taken or made by
such member, director or employee in bad faith and without reasonable belief that it was in the
best interests of the Company.

     5. ELIGIBILITY

     The persons who shall be eligible to receive Options or Restricted Stock awards pursuant to
the Plan shall be such members of the Board of Directors who are not employees of the Company or a
Subsidiary.

     6. INCENTIVE AWARDS UNDER THE PLAN

     Incentive Awards granted under the Plan shall be subject to the terms and conditions set forth
in the Plan, and shall be evidenced by an Incentive Award Agreement which shall not be inconsistent
with the provisions of the Plan. The Board of Directors shall be entitled to increase or decrease
the number of Incentive Awards Participants receive.

     (a) Annual Awards. Annually, Participants shall receive the following Incentive
Awards:

4

 

     (i) 3,800 Options; and

     (ii) 1,500 shares of Restricted Stock.

     (b) Other Awards

     Upon the initial election to the Board of Directors of any person who is a
Participant (other than through an initial election by the Company’s stockholders at
an annual meeting of stockholders), such person shall be granted:

     (i) Options to purchase such number of shares of Company Stock as shall be
determined by multiplying (1) 308 by (2) the number of full calendar months
remaining before the next annual meeting of stockholders of the Company at which
directors will be elected (if no date has been set for the next annual meeting of
stockholders such date shall be presumed to be November 1); and

     (ii) Restricted Stock in such number of shares as shall be determined by
multiplying (1) 104 by (2) the number of full calendar months remaining before the
next annual meeting of stockholders of the Company at which directors will be
elected (if no date has been set for the next annual meeting of stockholders such
date shall be presumed to be November 1).

     The Board of Directors shall be entitled to increase or decrease these pro rata amounts in
order to reflect any adjustment on the annual awards.

     7. OPTIONS

     (a) Exercise Price

     The exercise price per share of an Option shall be the Fair Market Value of a share of Company
Stock on the date the Option is granted.

     (b) Term and Exercise of Options

     (i) Unless the Board, in its discretion, determines otherwise, each Option
shall become cumulatively exercisable as to 25% of the shares covered thereby on
each of the first, second, third and fourth anniversaries of the date of grant. The
expiration date of each Option shall be ten years after the date of grant;
provided, however, that if the expiration date would occur during a
period in which the Participant is prohibited from trading in the Company Stock
pursuant to the provisions of the Company’s insider trading policy, then the
expiration date shall be extended and such Option shall expire on the
30th day after the prohibition against trading under the Company’s
insider trading policy has ceased to be in effect.

     (ii) An Option may be exercised for all or any portion of the shares as to
which it is exercisable; provided, that no partial exercise of an Option shall be
for an aggregate exercise price of less than $1,000. The partial exercise of an

5

 

Option shall not cause the expiration, termination or cancellation of the
remaining portion thereof.

     (iii) An Option shall be exercised by delivering notice to the Company’s
principal office, to the attention of its Secretary (or the Secretary’s designee),
no less than one business day in advance of the effective date of the proposed
exercise. Such notice shall specify the number of shares of Company Stock with
respect to which the Option is being exercised and the effective date of the
proposed exercise and shall be signed by the Participant or other person then having
the right to exercise the Option. Such notice may be withdrawn at any time prior to
the close of business on the business day immediately preceding the effective date
of the proposed exercise. Payment for shares of Company Stock purchased upon the
exercise of an Option shall be made on the effective date of such exercise by one or
a combination of the following means: (i) in cash, by certified check, bank
cashier’s check or wire transfer; (ii) subject to the approval of the Board of
Directors, in shares of Company Stock owned by the Participant for at least six
months prior to the date of exercise and valued at their Fair Market Value on the
effective date of such exercise; or (iii) subject to the approval of the Board of
Directors, by such other provision as the Board of Directors may from time to time
authorize. Any payment in shares of Company Stock shall be effected by the delivery
of such shares to the Secretary (or the Secretary’s designee) of the Company, duly
endorsed in blank or accompanied by stock powers duly executed in blank, together
with any other documents and evidences as the Secretary (or the Secretary’s
designee) of the Company shall require.

     (iv) Certificates for shares of Company Stock purchased upon the exercise of an
Option shall be issued in the name of the Participant or other person entitled to
receive such shares, and delivered to the Participant or such other person as soon
as practicable following the effective date on which the Option is exercised.

     (c) Effect of Termination of Directorship

     (i) Unless the Board of Directors shall determine otherwise, in the event of a
Participant’s removal or resignation as a member of the Board of Directors for any
reason other than Cause, Disability or death: (i) Options granted to such
Participant, to the extent that they were exercisable at the time of such removal or
resignation, shall remain exercisable until the date that is three months after such
removal or resignation, on which date they shall expire; and (ii) Options granted to
such Participant, to the extent that they were not exercisable at the time of such
removal or resignation, shall expire at the close of business on the date of such
removal or resignation. The three-month period described in this Section 7(c)(i)
shall be extended to one year in the event of the Participant’s death during such
three-month period. Notwithstanding the foregoing, no Option shall be exercisable
after the expiration of its term.

6

 

     (ii) Unless the Board of Directors shall determine otherwise, in the event of a
Participant’s removal or resignation as a member of the Board of Directors on
account of the Disability or death of the Participant: (i) Options granted to such
Participant, to the extent that they were exercisable at the time of such removal or
resignation, shall remain exercisable until the first anniversary of such removal or
resignation, on which date they shall expire; and (ii) Options granted to such
Participant, to the extent that they were not exercisable at the time of such
removal or resignation, shall expire at the close of business on the date of such
removal or resignation. Notwithstanding the foregoing, no Option shall be
exercisable after the expiration of its term.

     (iii) In the event of a Participant’s removal or resignation as a member of the
Board of Directors for Cause, all outstanding Options granted to such Participant
shall expire at the commencement of business on the date of such removal or
resignation.

     (d) Acceleration of Exercise Date Upon Change in Control

     Upon the occurrence of a Change in Control, each Option granted under the Plan and outstanding
at such time shall become fully and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the Plan. In addition, in the
event of a potential Change in Control, the Board of Directors may in its discretion, cancel any
outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof,
the value of such Options based upon the price per share of Company Stock to be received by
shareholders of the Company in the transaction giving rise to the Change in Control less the
exercise price of each Option.

     8. RESTRICTED STOCK

     (a) Issue Date and Vesting Date

     At the time of the grant of shares of Restricted Stock, the Board of Directors shall establish
an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares.
Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to
Section 8(b) are satisfied, upon the occurrence of the Vesting Date with respect to a share of
Restricted Stock, such share shall vest and the restrictions of Section 8(b) shall cease to apply
to such share. Unless the Board of Directors determines otherwise, shares of Restricted Stock
issued under the Plan vest on the first anniversary of the Issue Date.

     (b) Conditions to Vesting

     At the time of the grant of shares of Restricted Stock, the Board of Directors may impose such
restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems
appropriate. By way of example and not by way of limitation, the Board of Directors may require,
as a condition to the vesting of any class or classes of shares of Restricted Stock, that the
Participant or the Company achieves such performance goals as the Board of Directors may specify.

7

 

     (c) Restrictions on Transfer Prior to Vesting

     Prior to the vesting of a share of Restricted Stock, no transfer of a Participant’s rights
with respect to such share, whether voluntary or involuntary, by operation of law or otherwise,
shall be permitted. Immediately upon any attempt to transfer such rights, such share, and all of
the rights related thereto, shall be forfeited by the Participant.

     (d) Dividends on Restricted Stock

     The Board of Directors in its discretion may require that any dividends paid on shares of
Restricted Stock shall be held in escrow until all restrictions on such shares have lapsed.

     (e) Issuance of Certificates

     Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the
Company shall cause to be issued a stock certificate, registered in the name of the Participant to
whom such shares were granted, evidencing such shares; provided, that the Company shall not cause
such a stock certificate to be issued unless it has received a stock power duly endorsed in blank
with respect to such shares. Each such stock certificate shall bear the following legend:

The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Zale Corporation Outside Directors’ 2005
Stock Incentive Plan, and such rules, regulations and
interpretations as the Zale Corporation Board of Directors may
adopt. Copies of the Plan and, if any, rules, regulations and
interpretations are on file in the office of the Secretary of Zale
Corporation, 901 West Walnut Hill Lane, Irving, Texas 75038-1003.

     Such legend shall not be removed until such shares vest pursuant to the terms hereof.

     Each certificate issued pursuant to this Section 8(e), together with the stock powers relating
to the shares of Restricted Stock evidenced by such certificate, shall be held by the Company
unless the Board of Directors determines otherwise.

     (f) Voting Rights of Restricted Stock

     During the restricted period, Participants holding shares of Restricted Stock may exercise
full voting rights with respect to the shares.

     (g) Consequences of Vesting

     Upon the vesting of a share of Restricted Stock pursuant to the terms of the Plan, the
restrictions of Section 8(c) shall cease to apply to such share. Reasonably promptly after a share
of Restricted Stock vests, the Company shall cause to be delivered to the Participant to whom such
shares were granted, a certificate evidencing such share, free of the legend set forth in

8

 

Section 8(e). Notwithstanding the foregoing, such share still may be subject to restrictions
on transfer as a result of applicable securities laws.

     (h) Effect of Termination of Directorship

     (i) Unless the Board of Directors provides otherwise, during the 90 days
following a Participant’s removal or resignation as a member of the Board of
Directors for any reason other than Cause, the Company shall have the right to
require the return of any shares to which restrictions on transferability apply, in
exchange for which the Company shall repay to the Participant (or the Participant’s
estate) any amount paid by the Participant for such shares. In the event that the
Company requires such a return of shares, it also shall have the right to require
the return of all dividends paid on such shares, whether by termination of any
escrow arrangement under which such dividends are held or otherwise.

     (ii) In the event of a Participant’s removal or resignation as a member of the
Board of Directors for Cause, all shares of Restricted Stock granted to such
Participant which have not vested as of the date of such removal or resignation
shall immediately be returned to the Company, together with any dividends paid on
such shares, in return for which the Company shall repay to the Participant any
amount paid for such shares.

     (i) Effect of Change in Control

     Upon the occurrence of a Change in Control, all outstanding shares of Restricted Stock which
have not theretofore vested shall immediately vest.

     9. RIGHTS AS A STOCKHOLDER

     No person shall have any rights as a stockholder with respect to any shares of Company Stock
covered by or relating to any Option until the date of issuance of a stock certificate with respect
to such shares of Company Stock. Except as otherwise expressly provided in Section 3(b), no
adjustment to any Option shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.

     10. NO RIGHT TO INCENTIVE AWARD

     Other than as specifically provided in the Plan, no person shall have any claim or right to
receive an Incentive Award hereunder. The Board of Director’s granting of an Incentive Award to a
Participant at any time shall neither require the Board of Directors to grant any other Incentive
Award to such Participant or other person at any time nor preclude the Board of Directors from
making subsequent grants to such Participant or any other person.

     11. SECURITIES MATTERS

     The Company shall be under no obligation to effect the registration pursuant to the Securities
Act of 1933 of any interests in the Plan or any shares of Company Stock to be issued

9

 

hereunder or to effect similar compliance under any state laws. Notwithstanding anything
herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company
is advised by its counsel that the issuance and delivery of such certificates is in compliance with
all applicable laws, regulations of governmental authority and the requirements of the New York
Stock Exchange and any other securities exchange on which shares of Company Stock are traded.
Certificates evidencing shares of Company Stock issued pursuant to the terms hereof, may bear such
legends, as the Board of Directors, in its sole discretion, deems necessary or desirable to insure
compliance with applicable securities laws.

     The transfer of any shares of Company Stock hereunder shall be effective only at such time as
counsel to the Company shall have determined that the issuance and delivery of such shares is in
compliance with all applicable laws, regulations of governmental authority and the requirements of
the New York Stock Exchange and any other securities exchange on which shares of Company Stock are
traded. The Board of Directors may, in its sole discretion, defer the effectiveness of any
transfer of shares of Company stock hereunder in order to allow the issuance of such shares to be
made pursuant to registration or an exemption from registration or other methods for compliance
available under federal or state securities laws. The Company shall inform the Participant in
writing of the Board of Director’s decision to defer the effectiveness of a transfer. During the
period of such a deferral in connection with the exercise of an Option, the Participant may, by
written notice, withdraw such exercise and obtain the refund of any amount paid with respect
thereto.

     12. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE

     If any Participant shall, in connection with the acquisition of shares of Company Stock under
the Plan, make the election permitted under Section 83(b) of the Code (i.e., an election to include
in gross income in the year of transfer the amounts specified in Section 83(b)), such Participant
shall notify the Company of such election within ten days of filing notice of the election with the
Internal Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Code Section 83(b).

     13. WITHHOLDING TAXES

     Whenever cash is to be paid pursuant to an Option or share of Restricted Stock, the Company
shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and
local withholding tax requirements related thereto.

     Whenever shares of Company Stock are to be delivered either pursuant to an Option or as
Restricted Stock, the Company shall have the right to require the Participant to remit to the
Company in cash an amount sufficient to satisfy any federal, state and local withholding tax
requirements related thereto. With the approval of the Board of Directors, which it shall have
sole discretion to grant, a Participant may satisfy the foregoing requirement by electing to have
the Company withhold from delivery shares of Company Stock having a value equal to the amount of
tax to be withheld. Such shares shall be valued at their Fair Market Value on the date as of which
the amount of tax to be withheld is determined (the “Tax Date”). Fractional share amounts shall be
settled in cash. Such a withholding election may be made with respect to all or

10

 

any portion of the shares to be delivered pursuant to an Option or as Restricted Stock. To
the extent required for such a withholding of stock to qualify for the exemption available under
Rule 16b-3, such an election by a grantee whose transactions in Company Stock are subject to
Section 16(b) of the Exchange Act shall be: (i) subject to the approval of the Board of Directors
in its sole discretion; (ii) irrevocable; (iii) made no sooner than six months after the grant of
the award with respect to which the election is made; and (iv) made at least six months prior to
the Tax Date unless such withholding election is in connection with exercise of an Option and both
the election and the exercise occur prior to the Tax Date in a “window period” of ten business days
beginning on the third day following release of the Company’s quarterly or annual summary statement
of sales and earnings.

     14. AMENDMENT OR TERMINATION OF THE PLAN

     Except as provided in Section 3(d), the Board of Directors may, at any time, suspend or
terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that
stockholder approval shall be required if and to the extent required by Rule 16b-3 or the New York
Stock Exchange or any other securities exchange on which shares of the Company Stock are traded.
Nothing herein shall restrict the Board of Director’s ability to exercise its discretionary
authority pursuant to Section 4, which discretion may be exercised without amendment to the Plan.
No action hereunder may, without the consent of a Participant, reduce the Participant’s rights
under any outstanding Incentive Award.

     15. NO OBLIGATION TO EXERCISE

     The grant to a Participant of an Option shall impose no obligation upon such Participant to
exercise such Option.

     16. TRANSFERS UPON DEATH; NONASSIGNABILITY

     Upon the death of a Participant outstanding Options granted to such Participant may be
exercised only by the executor or administrator of the Participant’s estate or by a person who
shall have acquired the right to such exercise by will or by the laws of descent and distribution.
No transfer of an Incentive Award by will or the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Board of Directors may deem
necessary to establish the validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Incentive Award that are or would have been
applicable to the Participant and to be bound by the acknowledgments made by the Participant in
connection with the grant of the Incentive Award.

     During a Participant’s lifetime, the Board of Directors may permit the transfer, assignment or
other encumbrance of an outstanding Incentive Award unless the award is meant to qualify for the
exemptions available under Rule 16b-3 and the Board of Directors and the Participant intend that it
shall continue to so qualify.

11

 

     17. EXPENSES AND RECEIPTS

     The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company
in connection with the exercise of any Option by a Participant will be used for general corporate
purposes.

     18. FAILURE TO COMPLY

     In addition to the remedies of the Company elsewhere provided for herein, failure by a
Participant (or beneficiary) to comply with any of the terms and conditions of the Plan, unless
such failure is remedied by such Participant (or beneficiary) within ten days after notice of such
failure by the Board of Directors, shall be grounds for the cancellation and forfeiture of such
Incentive Award, in whole or in part, as the Board of Directors, in its sole discretion, may
determine.

     19. EFFECTIVE DATE AND TERM OF PLAN

     The Plan shall be effective as of the Effective Date. Unless earlier terminated by the Board
of Directors, the right to grant Options under the Plan will terminate on the tenth anniversary of
the Effective Date. Options outstanding at the termination of the Plan will remain in effect
according to their terms and the provisions of the Plan.

     20. APPLICABLE LAW

     Except to the extent preempted by any applicable federal law, the Plan will be construed and
administered in accordance with the laws of the State of Delaware, without reference to the
principles of conflicts of laws thereunder.

12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]